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 2022 European Semester - Spring Package
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, EU energy policy, EU financial instrument, European Semester, economic forecasting, economic policy, economic recovery, economic reform, macroeconomics, single market

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  COM(2022) 600 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  2022 European Semester - Spring Package {SWD(2022) 628 final} - {SWD(2022) 629 final} - {SWD(2022) 630 final} - {SWD(2022) 631 final} - {SWD(2022) 632 final} - {SWD(2022) 633 final} - {SWD(2022) 634 final} - {SWD(2022) 635 final} - {SWD(2022) 636 final} - {SWD(2022) 637 final} - {SWD(2022) 638 final} - {SWD(2022) 639 final}  
 
 
1. INTRODUCTION 

The  EU’s  decisive  policy  response  following  the  COVID-19  pandemic  supported  the 
Union’s  resilience,  as  also  shown  under  the  current  unprecedented  geopolitical  and 
economic  environment.  Coordinated  policy  action  at  EU  and  national  levels  cushioned  the 
impact of the pandemic on Member States’ economies and opened the way to a strong recovery. 
The EU economy reached its pre-pandemic output level in the autumn of 2021 and the outlook 
before  Russia  invaded  Ukraine  was  for  a  phase  of  prolonged  and  robust  expansion.  However, 
Russia’s  war  of  aggression  against  Ukraine  has  created  a  new  environment,  exacerbating  pre-
existing  headwinds  to  growth,  which  were  previously  expected  to  subside.  Further  hikes  in 
commodity  prices,  renewed  supply  disruptions  and  heightening  uncertainty  are  denting  growth 
and  imply  significant  downside  risks.  It  also  poses  additional  challenges  to  the  EU  economies 
related  to  security  of  energy  supply  and  fossil  fuel  dependencies  from  Russia.  The  broadening 
inflationary pressures beyond energy prices, together with the large inflow of people fleeing the 
war,  are  having  a  direct  impact  on  European  societies.  Yet,  the  EU  economy  is  showing  its 
resilience, being projected to keep expanding in 2022-2023. Residual tailwinds from re-opening 
dynamics, a still improving labour market and strong policy response to the pandemic shock still 
support growth. Short-term actions, including the temporary Support to mitigate Unemployment 
Risks in an Emergency (SURE), the Coronavirus Response Investment Initiative, REACT-EU or 
the  State  aid  temporary  framework,  and  the  on-going  roll-out  of  NextGenerationEU,  with  the 
Recovery and Resilience Facility (RRF) at its heart, have clearly paid off. At the same time, the 
growth  projections  are  surrounded  by  exceptional  uncertainty  and  subject  to  strong  downside 
risks. 

REPowerEU is the EU’s plan to reduce Europe’s dependence from Russian fossil fuels as 
soon as possible and well before 2030, by accelerating the European Green Deal. Based on 
the  Commission  package  of  18  May1,  REPowerEU  accelerates  measures  aimed  at  more 
affordable,  secure  and  sustainable  energy  in  the  face  of  the  emerging  challenges.  The  case  for 
reducing our dependence on fossil fuels from Russia has never been clearer. It should be based 
on  a  rapid  transition  away  from  all  fossil  fuels,  as  well  as  the  strengthening  of  our  social  and 
economic  resilience.  The  REPowerEU  plan  includes  concrete  measures  to  reduce  the  Union’s 
energy dependence on all Russian fuels and speed up the implementation of the European Green 
Deal with new actions, building on the Fit for 55 package. The plan mobilises additional funding 
to  further  accelerate  the  decarbonisation  of  our  economy  and  address  remaining  infrastructure 
gaps in the EU, including important cross-border links. It also includes measures to alleviate the 
impacts on firms and households of the energy supply disruptions linked to the Russian invasion. 
Measures to speed up permitting procedures will unlock the EU's potential in renewable energy, 
matched by actions to address the green skills shortage. 

The European Semester and the RRF provide robust frameworks to ensure effective policy 
coordination  and  to  address  the  current  challenges.  The  four  dimensions  of  the  EU’s 
fairness,  and 
competitive  sustainability  –  environmental  sustainability,  productivity, 
macroeconomic stability  – will  continue to  guide  policy  action at  European and national  level. 
The country-specific recommendations adopted in the context of the European Semester provide 
guidance to Member States to respond adequately to persisting and new challenges and deliver 

1 COM(2022) 230  

1 

 
                                                           
on  their  shared  key  policy  objectives.  This  year  they  also  include  guidance  for  new  dedicated 
REPowerEU chapters in the recovery and resilience plans (RRPs), to reduce the dependency on 
fossil fuels through reforms and investments in line with the REPowerEU priorities2. The RRF 
will continue to drive Member States’ reform and investment agendas for the years to come and 
is the main tool to speed up the twin green and digital transition and strengthen Member States’ 
resilience,  including  through  the  implementation  of  national  and  cross-border  measures  under 
REPowerEU. The RRF also supports multi-country projects and reinforces cooperation between 
Member States. This is complemented by cohesion policy funds and other programmes3, which 
facilitate the delivery of  key  Union  priorities  for investment  at  national  and regional levels, so 
that  no  region  and  no  person  is  left  behind.  The  2022  European  Semester  cycle  also  provides 
updated  and  consistent  reporting  on  progress  towards  the  achievement  of  the  Sustainable 
Development Goals (SDGs) across Member States. At Union level, whereas progress has been 
observed in past years with regard to almost all SDGs, more needs to be done, also in the context 
of the COVID-19 fallout and the current geopolitical and economic situation4. 

2. ECONOMIC AND EMPLOYMENT OUTLOOK  

After the soft patch at the turn of 2021, the EU economy entered 2022 with the prospect of 
a vigorous expansion over this year and the next. Following the robust rebound in economic 
activity that started in spring last year and continued unabated through early autumn, the growth 
momentum in the EU slowed down under the impact of intensifying headwinds. The resurgence 
of  the  pandemic  last  autumn  and  the  rapid  spread  of  the  new  Omicron  variant  led  to  renewed 
strains on healthcare systems and prompted the reinstatement of restrictions, though generally of 
a  milder  or  more  targeted  nature  than  in  previous  waves.  Persistent  logistic  and  supply 
bottlenecks, including shortages of semiconductors, some raw materials and metal commodities, 
weighed on production,  as did  the elevated prices  of  energy  and labour shortages in  many EU 
countries.  Inflationary  pressures  started  to  curtail  households’  purchasing  power.  However,  as 
supply conditions were expected to normalise and inflationary pressures to moderate, economic 
activity  looked  set  to  regain  traction.  A  continuously  improving  labour  market,  large 
accumulated household savings, still favourable financing conditions, and the roll-out of the RRF 
were all set to sustain a prolonged and robust expansionary phase. 

The  Russian  invasion  of  Ukraine  has  dented  global  economic  expectations.  The  negative 
impact  on  the  economic  prospects  acts  through  multiple  channels.  These  include  negative 
confidence  effects,  lower  trade,  tighter  financing  conditions  and  especially  higher  commodity 
prices,  in  turn  bringing  renewed  disruptions  in  supply  chains  and  additional  stress  on  global 
logistics.  Beyond  these  immediate  consequences,  Russia’s  invasion  of  Ukraine  has  led  to  a 
decoupling from Russia, including as regards trade and financial relations, the scale of which is 
difficult  to  fully  apprehend  at  this  stage.  In  parallel,  the  recent  drastic  pandemic  containment 
measures  applied  in  some  parts  of  China  could,  if  protracted,  add  to  existing  bottlenecks.  The 

2 COM(2022) 231  
3 Such as the Connecting Europe Facility, the Just Transition Mechanism, Horizon Europe and the EU Emissions Trading System 

Innovation and Modernisation Funds. 

4  See  Appendix  3  on  EU-wide  progress  on  SDG  implementation  and  Eurostat’s  2022  SDG  Monitoring  Report: 

https://ec.europa.eu/eurostat/product?code=KS-09-22-019. 

2 

 
                                                           
new geopolitical environment calls for actions to achieve the EU’s open strategic autonomy and 
reduce its dependency on energy and other strategic products and technologies. 

While  the  Russian  invasion  of  Ukraine  has  heightened  uncertainty,  the  economic  outlook 
still points to continued economic expansion in 2022 and 2023, showing the resilience of the 
EU economy. This reflects the comfortable starting position before the outbreak of the war and 
the crucial support provided by the full  deployment  of the RRF.  According to  the  spring 2022 
European Economic forecast, real GDP growth in the EU is set to slow from an estimated 5.4 % 
in 2021 to 2.7 % in 2022 and 2.3 % 2023. The employment rate for people aged 15-74 is forecast 
to increase from 72.5 % in 2021 to 73.5 % in 2022 and 74.2 % in 2023. Inflation is expected to 
be  higher  and  remain  elevated  for  longer  than  in  the  previous  forecast,  driven  by  war-induced 
commodity price increases and broadening price pressures. For 2022, it is projected at 6.8 % and 
3.2 %  in  2023.  The  new  growth  outlook  is  considerably  less  bright  than  projected  before 
Russia’s invasion of Ukraine,  due to  downside  risks to  the economic outlook in  the context  of 
Russia’s aggression, unprecedented  energy price  hikes and continued supply chain  disruptions. 
At  the  same  time,  the  unprecedented  nature  and  size  of  the  new  shocks  makes  all  projections 
subject to considerable uncertainty.  

Lower growth prospects and intensifying price pressures pose policy dilemmas. For much of 
the  past  two  years,  the  combination  of  an  accommodative  monetary  policy  and  strong  fiscal 
support has allowed EU Member States to stabilise the economy in the face of the pandemic. The 
shocks unleashed by the war weigh predominantly on the supply side of the economy, exerting a 
drag on output growth while pushing up inflation to rates never seen since the introduction of the 
single currency. On its part, fiscal policy is called to mitigate the impact of rising energy prices, 
for  vulnerable  households  in  particular,  being  mindful  of  the  measures’  potential  impact  on 
inflation,  the  consistency  with  the  long-term  aim  to  reduce  overall  reliance  on  fossil  fuels  and 
shift  fossil  fuel  imports away  from  Russia,  as  well  as  the  need  for  prudence  to  maintain  fiscal 
sustainability. 

3.  LINKING  THE  EUROPEAN  SEMESTER,  THE  RRF  AND  REPOWEREU  –  KEY 
OBJECTIVES FOR THE 2022 COUNTRY-SPECIFIC RECOMMENDATIONS 

The  RRF  is  the  central  tool  to  deliver  the  EU  policy  priorities  under  the  European 
Semester and, in combination with REPowerEU, to address newly emerged challenges. The 
Facility, with its strong performance-based monitoring system, is providing important financial 
support  for  the  implementation  of  key  reforms  and  investments,  entailing  a  fiscal  and  reform 
impulse  financed  by  the  Union.  One  year  on  from  its  introduction,  major  progress  has  been 
made,  triggering  positive  spillover  effects  across  the  EU  while  supporting  convergence,  in 
particular  across  the  euro  area.  Implementing  the  ambitious  RRPs  is  key  to  foster  the  twin 
transition  and  increase  Member  States’  resilience.  In  line  with  the  RRF  Regulation,  national 
RRPs  cover  all  or  a  significant  subset  of  the  relevant  country-specific  recommendations.  The 
European  Semester  and  the  RRF  will  therefore  continue  to  be  closely  interlinked  to  ensure 
complementarity  in  the  policy  priorities  they  are  set  to  achieve,  by  avoiding  overlaps  and 
minimising the administrative burden. Russia’s invasion of Ukraine has altered the geopolitical 

3 

 
and  economic  context.  The  Versailles  Declaration5  called  for  further  decisive  steps  towards 
building European sovereignty, by reducing EU’s strategic dependencies, increasing the security 
of  supply  notably  in  the  area  of  critical  raw  materials  and  phasing  out  our  fossil  fuel 
dependencies from Russia. The RRF will play a central role in mobilising and steering available 
resources at European level to achieve these objectives, as also outlined under REPowerEU.  

As announced in the 2022 Annual Sustainable Growth Survey this year’s  spring Package 
reintroduces  country  reports  and  country-specific  recommendations  (CSRs).  The  country 
reports  provide  a  snapshot  of  the  existing  and  newly  emerging  challenges  along  the  four 
dimensions of competitive sustainability, as well as the individual Member States’ resilience to 
tackle  these  challenges,  as  also  reflected  in  the  resilience  dashboards  developed  by  the 
Commission6.  The  country  reports  take  stock  of  the  implementation  of  past  country-specific 
recommendations  and  of  the  measures  included  in  the  RRPs  that  will  largely  drive  Member 
States’ reform and investment agendas until 20267. The reports identify key outstanding or newly 
emerging  challenges, not  sufficiently  covered  by  commitments undertaken  in  the RRPs, which 
are the basis for this year’s CSRs. This ‘gap analysis’ and the related recommendations notably 
take  into  account  the  need  to  reduce  our  energy  dependencies  following  Russia's  invasion  of 
Ukraine,  in  line  with  the  REPowerEU  priorities,  and  to  address  the  related  socio-economic 
implications.  

the  RRPs, 

the  encompassing  nature  of 

Given 
targeted  new  country-specific 
recommendations  address  a  limited  number  of  additional  reform  and  investment 
challenges8. Member States should primarily  focus on the timely implementation of the RRPs. 
Therefore,  the  Commission  proposes  to  the  Council  to  address  to  all  Member  States  with  an 
approved  RRP:  a  recommendation  on  fiscal  policy,  including  fiscal-structural  reforms  where 
relevant;  a  recommendation  on  the  implementation  of  the  RRP  and  the  cohesion  policy 
programmes;  a  recommendation  on  energy  policy  in  line  with  the  objectives  of  REPowerEU; 
where relevant, an additional recommendation on outstanding and/or newly emerging structural 
challenges, based on the gap analysis. The scope of the recommendations is larger for Member 
States that do not have approved RRPs.  

The  RRF  is  a  powerful  tool  to  achieve  the  objectives  of  REPowerEU.  The  RRF  offers  an 
existing  monitoring  and  reporting  framework  under  which  Member  States  could  report  also 
progress  made  in  reaching  the  objectives  of  REPowerEU,  in  full  synergy  with  the 
implementation  of  existing  and  updated  national  energy  and  climate  plans9  and  the  European 
Semester.  Member  States  are  strongly  encouraged  to  put  forward  additional  investments  and 
reforms and reinforce existing measures to foster the EU’s energy security and decrease reliance 
on  Russian  fossil  fuels.  To  that  effect,  Member  States  are  invited  to  propose  a  dedicated 

5 https://www.consilium.europa.eu/media/54773/20220311-versailles-declaration-en.pdf 
6 The resilience dashboards, developed by the Commission, aim to provide a holistic assessment of resilience in the EU and its 
Member  States.  They  assess  resilience  as  the  ability  to  make  progress  towards  policy  objectives  amidst  challenges.  See: 
https://ec.europa.eu/info/strategy/strategic-planning/strategic-foresight/2020-strategic-foresight-report/resilience-
dashboards_en 

7 See Appendix 2 on the EU-wide progress in the implementation of the country-specific recommendations.  
8 See Appendix 1 on the overview of thematic areas covered in this year’s proposals for country-specific recommendations. 
9 Member States will update national energy and climate plans in 2023 in line with REPowerEU, the relevant country specific 

recommendations and eventual modifications of RRPs. 

4 

 
                                                           
REPowerEU chapter in their RRPs, in line with the respective Guidance issued on 18 May10. In 
this  context,  the  newly  issued  CSRs  in  2022  in  the  area  of  energy  will  become  particularly 
relevant for the reforms and investments included in the REPowerEU chapters. When assessing 
the  additional  chapter  and  any  other  targeted  modifications  to  address  new  CSRs,  the 
Commission will take into account  all analytical  information on the Member State available in 
the  context  of  the  European  Semester  and  consider  the  measures  already  included  in  RRPs  as 
well as cohesion policy programmes for 2021-2027.  

4.  GOING  BEYOND  THE  RRPs  –  OVERVIEW  OF  IDENTIFIED  COMMON 
CHALLENGES 

While  Member  States  should  proceed  with  the  implementation  of  their  RRPs,  a  number  of 
outstanding challenges persist and new ones have arisen, including as a result of the invasion of 
Ukraine, impacting the four dimensions of competitive sustainability. Member States thus  face 
both  common  and  country-specific  challenges  that  require  policy  action,  as  reflected  in  the 
country-specific recommendations. 

4.1 Energy and environmental sustainability 

Accelerating decarbonisation will reduce our dependence on fossil fuels while also helping 
reach our 2030 climate goals as set in the European Climate Law11. The invasion of Ukraine 
exposed the EU’s dependency on fossil fuel imports. It reinforces the environmental, economic 
and  security  case  for  scaling  up  renewable  energy  and  reducing  energy  consumption.  With  a 
22% share of gross final energy consumption from renewable sources, based on the most recent 
data, the EU exceeded by 2 percentage points its 2020 target, but more effort is now necessary. 
In its Fit for 55 package of July 2021, the Commission proposed to increase the 2030 renewables 
target  from  at  least  32%  to  at  least  40%  of  the  EU’s  overall  energy  mix,  and  to  increase  the 
energy  efficiency  target  to  achieve  9%  reduction  in  energy  consumption  by  2030  compared  to 
baseline  projections.  Given  the  urgent  need  to  make  the  EU  less  dependent  on  Russian  fossil 
fuels, as part of its REPowerEU Plan, the Commission tabled legislative amendments to increase 
the 2030 renewable target to at least 45% and the energy efficiency 2030 target to at least -13%. 

Reducing  energy  consumption  and  increasing  the  share  of  renewables  require  mobilising 
higher  levels  of  public  and  private  investment.    Previous  estimates  of  additional  investment 
needs for the green transition of EUR 520 billion per year12 are likely to be at the lower end of 
the  actual  needs,  as  a  result  of  the  need  to  frontload  the  energy  transition  in  the  wake  of  the 
Russian invasion of Ukraine. Public and private investment in energy should focus on reducing 
energy  consumption in  line with the energy efficiency first  principle13,  supporting energy-poor 
households,  empowering  active  consumer  participation  in  the  energy  transition,  increasing  the 

10 C(2022) 3300 
11 Regulation (EU) 2021/1119. 
12  Box  2  in  European  Commission,  “The  EU  economy  after  COVID-19: implications  for  economic  governance”,  COM(2021) 

662 final.   

13  The  energy  efficiency  first  principle  is  one  of  the  key  pillars  not  only  to  meet  EU's  climate  objectives  but  also  to  reduce 
dependence on fossil fuels from abroad and increase security of supply and the use of renewable energy. It should be applied 
by  taking  utmost  account  of  cost-efficient  energy  efficiency  measures  in  shaping  energy  policy  and  making  relevant 
investment decisions. 

5 

 
                                                           
share  of  renewable  energy  and  promoting  sustainable  mobility  and  industry  decarbonisation, 
while direct and indirect subsidies to fossil energies should be phased out as a matter of priority. 
Investments  in  research  and  innovation  will  be  crucial  to  speed  up  the  green  transition. 
Investment  in  energy infrastructure, including in  a cross-border  context, will  also  be needed to 
diversify sources of energy supply, with a focus on clean energy, and to ensure energy security. 
In particular, development of cross-border interconnectors will contribute to increasing security 
of supply as they give Member States access to additional and more diversified energy sources 
and  increase  the  flexibility  and  resilience  of  their  energy  markets.  Member  States  need  to 
mobilise all available public and private funding sources to finance these investments, including 
by  allocating  a  higher  share  of  ETS  revenues.  New  infrastructure  and  network  investments 
related to gas can play a role in diversifying energy supplies and increasing security of supply. 
They  are recommended  to  be future-proof where possible, in order to  facilitate their long-term 
sustainability through future repurposing for sustainable fuels.  

Cumbersome  administrative  procedures  hamper  the  deployment  of  renewable  energy 
projects.  Stakeholders  have  repeatedly  signalled  administrative  procedures  in  several  Member 
States  as  a  key  bottleneck  for  the  deployment  of  renewable  energy  projects  and  related 
infrastructure, impacting investor certainty, project  planning and overall  project  approval  rates. 
Efforts  should  in  particular  focus  on  the  complete  transposition  of  the  Renewable  Energy 
Directive  and  on  rigorous  application  of  the  Recommendation  on  accelerating  permitting 
procedures  adopted  on  18  May.  Member  States  should  also  identify  without  delay  'renewables 
go-to  areas',  as  set  out  in  the  proposed  amendment  of  the  Renewable  Energy  Directive,  and 
tackle  remaining  barriers  to  renewable  energy  deployment  and  related  infrastructure.  New 
renewable energy and energy infrastructure projects should benefit from simplified planning and 
permitting procedures. In this regard, the Commission has since March 2022 been also working 
with Member State authorities in the framework of the Single Market Enforcement Taskforce in 
tackling  permitting-related  barriers.  Member  States  will  also  need  to  focus  on  addressing 
bottlenecks  related  to  labour  shortages  and  make  available  additional  upskilling  and  reskilling 
opportunities, including for relevant permitting authorities at national, regional and local levels, 
as part of their broader efforts in ensuring the availability of skills necessary for the objectives of 
the Green Deal, including the Renovation Wave. 

Concerns regarding raw material availability underscore the need and urgency to advance 
our  transition  towards  a  circular  economy.  Together  with  a  strategic  rethinking  of  the 
sourcing of raw materials,  in  particular rare  earths necessary for the twin  transitions,  including 
considering sustainable extraction and processing of raw materials in the EU, scaling up circular 
and innovative solutions will enhance the availability of raw materials and contribute to reducing 
energy demand14. Circular economy, resource efficiency and waste management measures have 
environmental,  climate  and  economic  benefits.  They  should  be  prioritised  by  those  Member 
States  whose  current  policies  in  these  areas  do  not  yet  reach  their  full  potential.  This  calls  for 
putting  in  place  stronger  regulatory  frameworks  to  promote  the  circular  economy,  with 
incentives for innovative practices. 

14 In the area of critical raw materials, relevant efforts are ongoing and will be scaled up, as announced in the REPowerEU plan 

(COM(2022)230). 

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4.2 Productivity 

Ensuring a well-functioning Single Market remains key for productivity growth, economic 
prosperity  and  convergence.  The  combined  effect  of  the  COVID-19  crisis  and  Russia’s 
invasion  of  Ukraine  have  aggravated  supply  chain  disruptions  and  businesses  will  need  to 
diversify their supply chains to manage risks related to raw material prices, quality and supplies. 
Ongoing  containment  measures  and  protracted  labour  shortages  can  also  drag  on  economic 
activity and dent the functioning of critical supply chains for longer than expected. Since a well-
functioning  Single  Market  is  the  EU’s  main  source  of  productivity  growth,  job  creation  and 
resilience,  any  distortions  within  and  barriers  to  the  Single  Market,  that  constrain  the  free 
movement  of persons,  goods, services and  capital, need to  be tackled. This  requires a  constant 
effort  by  Member  States  addressing  bottlenecks  to  foster  investments,  including  in  transport 
infrastructure, and stability of supply  chains  through  all the ecosystems.  Actions are needed to 
mitigate the impact on viable EU businesses of both the energy price hike and the risks that stem 
from  the  Russian  invasion  of  Ukraine  on  supply  chain  disruptions,  logistics,  and  investments. 
Exploiting the diversity of the EU regions and helping all regions to unlock their full potential 
will contribute to a more integrated, buoyant and resilient the Single Market. A more integrated 
Single  Market  will  improve  EU  companies’  ability  to  raise  capital  across  the  EU,  therefore 
encouraging  long-term  investments  to  support  innovation  and  finance  the  green  and  digital 
transitions. Further progress in completing the Capital Markets Union and the Banking Union is 
also important in that regard.  

Ambitious reforms aimed at improving the business environment, administrative capacities 
and institutional resilience need to accompany additional investments. In order to implement 
productivity-enhancing  structural  reforms  and  large-scale  investments,  there  is  a  need  for  a 
comprehensive  policy  approach,  geared  towards  improving  administrative  capacities  and 
adequate framework conditions at national and subnational levels. A number of Member States 
still  face  the  challenge  to  improve  the  business  environment,  including  regulated  professions, 
efficient  public  administration,  public  procurement,  access  to  finance,  and  reducing  the 
administrative burden for businesses, in particular for small and medium enterprises (SMEs). In 
addition, continued efforts to strengthen the Rule of Law, in particular independent, quality and 
efficient  justice  systems  and  well-functioning  anti-corruption  frameworks,  are  essential  for  the 
soundness of Member States’ institutional resilience and a good business environment.  

Research  and  Innovation  (R&I)  remains  a  vital  tool  to  boost  Member  States’ 
competitiveness,  and  instrumental  for  the  twin  transitions  and  for  EU’s  open  strategic 
autonomy.  In  the  current  context,  effective  and  well-coordinated  research  and  innovation 
instruments  together  with  further  efforts  to  bridge  the  gap  between  innovation  and  market  are 
crucial to accelerate the green and digital transitions and reduce fossil fuel dependence in all EU 
countries and regions. While the substantial set of R&I reforms and investments included in the 
RRPs  should  significantly  contribute  to  strengthening  Member  States’  R&I  systems,  several 
countries will need to take further actions to strengthen their innovation landscape and tackle the 
challenges they face in the R&I field. Such actions include improving science-business linkages, 
facilitating  knowledge  transfers,  producing  excellence,  fostering  business  innovation  including 
through support of SMEs, start-ups  and social enterprises, expanding the regional base of their 
national  R&I public  and private ecosystem and  attracting talent.  In doing so,  suitable  financial 

7 

 
allocation,  coupled  with  clearly  articulated  research  and  innovation  objectives  and  funding 
targets are instrumental. 

Investments  in  digital  technologies,  people  and  their  skills  are  drivers  of  our  digital 
transformation. According to the Digital Economy and Society Index (DESI), the progress of 
Member  States  in  rolling-out  5G  networks  and  in  digitalising  the  public  and  private  service 
sector  is  mixed.  However,  progress  in  digital  is  closely  interlinked  with  other  enabling  factors 
such as R&I, finance, labour market and education and training reforms, as well as the need of 
clear investment  signals  to  facilitate the integration of digital  solutions  in relevant  sectors (e.g. 
energy,  mobility,  health).  Investments  in  digital  infrastructure  and  technologies  are  valuable 
enablers for the green and digital transformation of our economies and societies and need to be 
complemented by investing in digital education, in people and their skills, including in support to 
upskilling  and  reskilling,  with  a  strong  focus  on  addressing  regional  disparities,  including  by 
addressing  the  challenges  of  brain  drain,  the  urban-rural  divide  and  depopulation  in  particular 
regions. This will also contribute to stimulating productivity gains by European business and will 
incentivise  businesses,  in  particular  SMEs  to  move  towards  a  greater  digitalisation  of  their 
activities and contribute to the economic recovery in general. 

4.3 Fairness 

The European Pillar of Social Rights is the overall guiding framework to ensure fairness in 
the  EU;  its  full  implementation  is  crucial  to  achieving  upward  social  and  economic 
convergence. The RRPs include a wide range of reforms and investments that will contribute to 
support  a  broader  participation  in  the  labour  market,  productivity  gains  through  education, 
reskilling  and  upskilling  measures,  as  well  as  social  inclusion  and  resilience.  Together  with 
cohesion  policy  funds  and  the  Just  Transition  Mechanism,  the  RRF  is  supporting  a  fair  and 
inclusive recovery in the EU in line with the European Pillar of Social Rights. The Commission’s 
Action Plan to further implement the Pillar proposed new EU headline targets on employment, 
skills and poverty reduction by 203015, as well as a revised Social Scoreboard, all welcomed in 
the 2021 Porto Social Summit. Member States are in the process of setting national targets in line 
with  the  ambition  of  the  EU  headline  targets.  The  implementation  of  the  Pillar,  and  its 
monitoring via the Social Scoreboard, has been integrated in the European Semester cycle and is 
reflected in the analyses that underpin the relevant country-specific recommendations.  

The  COVID-19  pandemic  has  affected  different  population  groups  and  regions  unevenly 
and revealed underlying vulnerabilities and inequalities. Thanks to a prompt policy response, 
overall income inequalities and the risk of poverty  or social exclusion remained broadly stable 
between 2019 and 2020 in most Member States. However, the mid-term effects of the pandemic 
on  poverty  and  inequality  remain  uncertain.  The  COVID-19  crisis  has  disproportionately  hit 
some  regions,  sectors  and  population  groups  that  were  already  facing  worse  employment  and 
social  conditions,  notably:  the  youth,  low-skilled  and  temporary  workers,  persons  with 
disabilities,  people  with  a  migrant  background  and  the  Roma.  It  also  broadened  educational 
inequalities and skill gaps and has shown the importance of ensuring access to quality education 
at  all  levels,  as  well  as  adequate  coverage  by  social  safety  nets  and  short-time  work  schemes, 

15 By 2030: an employment rate of at least 78% of the population aged 20-64; at least 60% of all adults to participate in learning 

every year; at least 15 million fewer people at risk of poverty or social exclusion. 

8 

 
                                                           
including  those  supported  by  the  European  Social  Fund  and  SURE,  which  helped  preserve 
employment. The access to, adequacy and effectiveness of social benefits vary among Member 
States,  pointing  to  inefficiencies  in  the  social  protection  systems.  Increasing  the  availability  of 
affordable and social housing is warranted in a number of Member States. The pandemic has also 
highlighted  how  essential  it  is  to  have  effective,  resilient  and  sustainable  healthcare  systems. 
Several  Member  States  still  face  the  challenge  of  improving  the  resilience,  quality  and 
accessibility  of  their  healthcare  and  long-term  care  systems,  including  the  need  to  address 
shortages in the health workforce, while ensuring their long-term fiscal sustainability.  

The recent energy and food price rises hit the poorest households the hardest. The increases 
of  fossil  fuel,  electricity  and  commodity  prices,  already  noticeable  in  the  second  half  of  2021, 
have been further aggravated with the invasion of Ukraine. They weigh particularly on the most 
vulnerable  households,  who  have  to  spend  a  higher  share  of  their  disposable  income  on  basic 
goods, such as energy and food. The Commission Communication on Energy Prices16 includes a 
“toolbox” that the EU and its Member States can use to address the immediate impact of energy 
prices  increases,  and  further  strengthen  resilience  against  future  shocks.  Short-term  national 
measures include emergency income support to households, State support for companies, and tax 
reductions.  The  “toolbox”  was  complemented  in  the  REPowerEU  Communication  with 
additional  guidance  on  interventions  in  price  setting.  The  implementation  of  the  RRPs,  the 
REPowerEU  plan,  cohesion  programmes,  as  well  as  accompanying  policies  that  take  into 
account  distributional  and  social  impacts,  are  currently  even  more  necessary  to  ensure  a  fair 
green  transition  for  all  citizens  and  territories17.  Supporting  policies  should  be  temporary  and 
targeted  to  the  most  vulnerable  in  in  order  for  them  to  be  most  effective,  while  maintaining 
incentives to reduce the consumption of fossil fuels and containing their budgetary impact. 

As labour markets recover, we observe employment shifts due to digital, green, geopolitical 
and  demographic  transformations,  leading  to  labour  shortages.  For  many  employers,  the 
overlapping digital, green and geopolitical transformations are likely to lead to profound changes 
in operations and in business models. Labour shortages are  appearing in  many Member States, 
particularly  in  sectors  such  as  construction,  healthcare  and  information  and  communication 
technologies. Equipping the labour force with the right skills remains a major challenge not only 
to  address  labour  shortages  but  also  to  unlock  investments  by  firms  and  enable  the  green  and 
digital  transitions.  This  further  highlights  the  role  of  effective  active  labour  market  policy 
measures  and  public  employment  services,  labour-market  relevant  education  and  training,  and 
qualified teachers and trainers in increasingly knowledge-intensive labour markets and societies, 
as highlighted in the Recommendation on Effective Active Support to Employment (EASE). In 
the  context  of  labour  shortages  and  persistent  employment  gaps,  increasing  the  labour  market 
participation  of  women,  including  by  enhancing  access  to  early  childhood  education  and  care, 
and  underrepresented  groups,  such  as  persons  with  disabilities  migrants  and  the  Roma,  still 
represents a major opportunity for inclusive and sustainable growth and equality.  

Russia’s invasion of Ukraine has made millions of people flee their country to safety. These 
people, mainly women and children, need support via the social, education and health systems of 

16 COM(2021) 660 final.  
17  See:  Commission  proposal  for  a  Council  Recommendation  on  ensuring  a  fair  transition  towards  climate  neutrality 

https://ec.europa.eu/commission/presscorner/detail/en/ip_21_6795 

9 

 
                                                           
the  Member  States18.  The  wave  of  displaced  persons  from  Ukraine  has  been  followed  by  an 
unprecedented  wave  of  solidarity  across  Europe.  On  4  March  2022,  the  Temporary  Protection 
Directive was  triggered  for the first  time, granting displaced persons from  Ukraine the right  to 
legally  stay  in  the  EU,  as  well  as  access  to  early  childhood  education  and  care,  education  and 
training, labour market, healthcare, housing and social welfare19. It is essential that the lives of 
displaced people are not paused during the war so that they can continue with their education and 
are  able  to  work  and  acquire  new  skills.  This  requires  that  Member  States  provide  assistance 
addressing  the  immediate  needs  of  people  fleeing  Ukraine,  but  they  also  need  to  equip  the 
national  administrations  in  their  efforts  to  support  displaced  persons  in  accessing  healthcare, 
childcare,  housing,  social  protection,  engaging  in  education  and  training,  and  finding  jobs.  To 
financially support Member States in hosting those fleeing Ukraine, the Commission undertook a 
number  of  initiatives  as  of  March  202220  and  will  continue  providing  assistance  as  part  of  a 
coordinated EU effort.  

Member States’ continued reforms and investments will be crucial to support quality job 
creation,  skills  development  and  smooth  labour  market  transitions,  as  highlighted  by  the 
Commission proposal on Employment Guidelines. The Guidelines 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 also integrate specific 
guidance aimed at addressing increasing skills and labour shortages, and achieving socially just 
green  and  digital  transitions.  In  2022,  the  Commission  proposes  to  align  the  Employment 
Guidelines  to  better  reflect  the  post-COVID  environment,  most  recent  policy  initiatives  and 
relevant policy elements in relation to Russia’s aggression against Ukraine. 

4.4 Macroeconomic Stability 

Coordinated policy action cushioned the impact of the pandemic on the EU economies and 
opened the way to a robust recovery in 2021.  The general escape clause of the Stability and 
Growth Pact, coupled with the State aid temporary framework, enabled large-scale fiscal support 
in  all  Member  States.  In  parallel,  the  EU  mobilised  its  budget,  in  particular  with  SURE,  to 
mitigate the impact of the crisis on workers and companies. The roll-out of NextGenerationEU, 
including the RRF, is providing a strong impetus to the recovery. The fiscal stance in the EU as a 
whole – including public expenditure financed by grants from the RRF and other EU funds21 – is 

18    Most  arrivals  are  recorded  in  Poland,  followed  by  other  EU  Member  States  neighbouring  Ukraine,  but  some  resettlement 
towards other EU countries is expected.  See: Communication on ‘Welcome those fleeing the war in Ukraine’ of 23 March 
2022.  

19 See: Council Implementing Decision (EU) 2022/382 of 4 March 2022 establishing the existence of a mass influx of displaced 
persons  from  Ukraine  within  the  meaning  of  Article  5  of  Directive  2001/55/EC,  and  having  the  effect  of  introducing 
temporary protection (OJ L 71, 4.3.2022, p. 1).  

20  On  March  8,  the  Commission  adopted  the  Cohesion’s  Action  for  Refugees  in  Europe  (CARE)  proposal,  allowing  the  swift 
reallocation of available funding from the 2014-20 Cohesion policy (ESF, ERDF) and the Fund for European Aid to the most 
Deprived (FEAD). The 2022 envelope of the Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) 
can also be used by Member States to address the needs of those fleeing Ukraine. The Commission proposed to increase by 
EUR 3.4 billion the total pre-financing from the REACT-EU to Member States welcoming people displaced from Ukraine. 
These funds will complementing existing thematic funds such as the Asylum, Migration and Integration Fund (AMIF) and 
the  Border  Management  and  Visa  Instrument  (BMVI).  As  of  13  April,  the  Commission  introduced  a  new  a  simplified 
financing procedure under 2014-2020 cohesion policy to cover for basic needs of persons granted temporary protection as a 
result of the war in Ukraine. 

21   Excluding COVID-19 temporary emergency measures. 

10 

 
                                                           
estimated  to  have  been  broadly  neutral  in  2020  and  expansionary  by  close  to  1%  of  GDP  in 
2021.  

Discretionary policy measures, including higher investment, contribute to an expansionary 
fiscal stance in 2022 for the EU as a whole. This expansionary stance in 2022 is estimated at 
around 1¾% of GDP. The composition of discretionary measures has evolved over time in the 
face  of  emerging  challenges,  including  in  particular  policies  to  mitigate  the  impact  of  higher 
energy prices  on  firms  and households, and  measures for the support  of  those fleeing Russia’s 
military  aggression  against  Ukraine.  The  discretionary  fiscal  measures  that  have  been  adopted 
since autumn 2021 to reduce the impact of high energy prices are currently estimated at 0.6% of 
the EU GDP in 2022. These include temporary reductions in indirect taxes on energy products, 
subsidies to energy production, subsidies to energy consumers, social transfers (directly linked to 
energy consumption) to vulnerable households and regulated prices at retail level. While most of 
these measures have been announced as temporary, the associated costs would rise accordingly 
should  they  be  prolonged  in  time  or  widened  in  scope  in  the  absence  of  offsetting  measures. 
Moreover, it is important to note that the impact on public finances from the increase in energy 
prices goes beyond the discretionary measures taken. The deceleration in economic activity that 
results from  the energy  price shock  is  set  to  lead to  a slowdown in  tax and social contribution 
collections. This, together with possible higher public expenditure stemming from adjustments to 
inflation of wages, social benefits and other outlays, impacts the government deficit and debt. In 
order  to  contain  budgetary  costs,  maximise  their  economic  and  social  impacts,  and  maintain 
incentives  for  the  green  transition,  the  policy  measures  aimed  at  addressing  the  increase  in 
energy prices should be temporary and targeted at vulnerable households, for whom the energy 
bill represents a significant part of their consumption basket, as well as  at specifically exposed 
industries.  These  measures  should  also  be  accompanied  by  incentives  to  increase  energy 
efficiency and reduce fossil energy consumption. 

Fiscal  policy  should  be  prudent  in  2023,  while  standing  ready  to  react  to  the  evolving 
economic  situation.  The  specific  nature  of  the  macroeconomic  shock  imparted  by  Russia’s 
invasion of Ukraine, as well as its long-term implications for the EU’s energy security needs, call 
for a careful design of fiscal policy in 2023. Based on the spring 2022 forecast, which  projects 
GDP growth to remain in positive territory over the forecast horizon albeit amid high uncertainty 
and  downside  risks,  a  broad-based  fiscal  impulse  to  the  economy  in  2023  does  not  appear 
warranted.  Fiscal  policy  should  combine  higher  investment  with  controlling  the  growth  in 
nationally-financed primary current expenditure, while allowing automatic stabilisers to operate 
and providing temporary and targeted measures to mitigate the impact of the energy crisis and to 
provide  humanitarian  assistance  to  people  fleeing  from  Russia's  invasion  of  Ukraine.  Full  and 
timely implementation  of the RRPs is  key to  achieving higher levels  of investment.  Moreover, 
Member  States’  fiscal  plans  for  next  year  should  be  anchored  by  prudent  medium-term 
adjustment  paths  reflecting  fiscal  sustainability  challenges  associated  with  high  debt-to  GDP 
levels  that  have  increased  further  due  to  the  pandemic.  To  reduce  risks  from  climate  change, 
Member States are encouraged to systematically consider its implications in budgetary planning, 
alongside  with  policies  and  tools  that  help  prevent,  reduce  and  prepare  for  climate-related 
impacts in a fair way. Green budgeting practices in the Member States should be continued and 
encouraged to ensure coherence of public expenditures and revenues with environmental goals. 

Fiscal policies should continue to be appropriately differentiated across Member States (see 
also  Box  1).  High-debt  Member  States  should  ensure  prudent  fiscal  policy,  in  particular  by 

11 

 
limiting  the  growth  of  nationally-financed  current  expenditure  below  medium-term  potential 
output growth, taking into account continued temporary and targeted support to households and 
firms  (subject  to  State  Aid  rules)  most  vulnerable  to  energy  price  hikes  and  to  people  fleeing 
Ukraine.  Low/medium-debt  Member  States  should  specifically  ensure  that  the  growth  of 
nationally-financed  current  expenditure  is  in  line  with  an  overall  neutral  policy  stance,  taking 
into account continued temporary and targeted support to households and firms (subject to State 
Aid  rules)  most  vulnerable  to  energy  price  hikes  and  to  people  fleeing  Ukraine.  All  Member 
States  should  expand  public  investment  for  the  green  and  digital  transitions  and  for  energy 
security, including by making use of the RRF, other EU funds and REPowerEU.  

Heightened uncertainty and strong downside risks to the economic outlook in the context of 
war in Europe, unprecedented energy price hikes and continued supply chain disturbances 
warrant  the  extension  of  the  general  escape  clause  of  the  Stability  and  Growth  Pact 
through 2023. On 3 March 2021, the Commission concluded that the deactivation of the general 
escape clause of the Stability  and Growth Pact  should  be conditional upon the state of the EU 
and  euro  area  economy,  recognising  that  it  will  take  time  for  the  economy  to  return  to  more 
normal  conditions  and  that  the  decision  on  the  deactivation  or  continued  application  of  the 
general escape clause should be taken as an overall assessment of the state of the economy with 
the  level  of  economic  activity  in  the  EU  or  euro  area  compared  to  pre-crisis  levels  as  the  key 
quantitative  criterion.22  In  the  context  of  war  in  Europe,  unprecedented  energy  price  hikes  and 
continued supply chain disturbances, the state of the EU and euro area economy has not returned 
to more normal conditions. Moreover, the decision on the continued application or deactivation 
of the general escape clause should also consider the need for fiscal policy to be able to respond 
appropriately  to  the  economic  repercussions  of  Russia’s  military  aggression  against  Ukraine, 
including from energy supply disruptions. The continued activation of the general escape clause 
in  2023 will provide the space  for national  fiscal policy to  react  promptly  when needed, while 
ensuring a smooth transition from the broad-based support to the economy during the pandemic 
times  towards  an  increasing  focus  on  temporary  and  targeted  measures  and  fiscal  prudence 
required to ensure medium-term sustainability. The general escape clause does not suspend the 
Stability  and  Growth  Pact.  It  allows  for  a  temporary  departure  from  the  normal  budgetary 
requirements  provided  that  this  does  not  endanger  fiscal  sustainability  in  the  medium  term.  In 
autumn 2022, the Commission will re-assess the relevance of proposing to open excessive deficit 
procedures based on the outturn data for 2021. In spring 2023, the Commission will assess the 
relevance of proposing to open excessive deficit procedures based on the outturn data for 2022, 
in  particular  taking  into  account  compliance  with  the  fiscal  country-specific  recommendations 
addressed to  the Member States by the Council.  Based on the above  considerations, and  given 
the  implications  of  heightened  uncertainty  and  strong  downside  risks  on  the  economic  outlook 
for the EU and euro area as a whole, the Commission considers that the Union is not yet out of a 
period of severe economic downturn. On this basis, the conditions to maintain the general escape 
clause in 2023 and to deactivate it as of 2024 are met. The Commission invites the Council to 
endorse  this  conclusion  to  provide  clarity  to  Member  States.  The  Commission  will  provide 
orientations on possible changes to the economic governance framework after the summer break 
and well in time for 2023. 

22 COM(2021) 105 final 

12 

 
                                                           
Continuing  to  ensure  public  debt  sustainability  remains  important  for  many  Member 
States.  Medium-  and  long-term  fiscal  sustainability  challenges  largely  reflect  the  significant 
deterioration  of  structural  budgetary  positions,  which  added  to  existing  pre-crisis  debt 
vulnerabilities in several countries. The challenge of rising expenditure on pensions, health care 
and  long-term  care  because  of  an  ageing  population  needs  to  go  hand  in  hand  with  ensuring 
adequacy of pension and other social benefits. Putting pension systems on a sustainable footing 
from  both  a  fiscal  and  social  perspective  will  require  further  reforms  to  lengthen  careers  and 
making  labour  markets  more  inclusive.  Improving  the  fiscal  sustainability  of  health  care  and 
long-term  care  requires  improving  their  efficiency,  while  at  the  same  time  ensuring  their 
adequacy and accessibility.  

Concerted efforts should continue to step up the fight against aggressive tax planning and 
tax  evasion23.  These  together  with  shifting  the  tax  burden  away  from  labour  and  towards 
supporting the twin transition are policies that prevent distortions of competition, treat taxpayers 
fairly,  safeguard  public  finances,  and  ensure  sustainable  and  job-creating  growth.  Spillover 
effects  of  taxpayers’  aggressive  tax  planning  strategies  among  Member  States  call  for 
coordinated  action  on  national  policies  to  complement  EU  legislation.  Working  hours  by  low-
income  and  second  earners  are  particularly  responsive  to  changes  in  after-tax  wages.  On  the 
contrary,  certain  other  taxes,  in  particular  recurrent  property  taxes  and  consumption  taxes,  are 
less  distortive  and  would  allow  for  a  tax  shift  from  labour,  while  taking  into  account  the 
distributional  impact.  Moreover,  environmental  taxes  reduce  negative  externalities  such  as 
pollution, thus helping to achieve the EU’s environmental targets.  

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

As  part  of  the  spring  2022  European  Semester  package,  the  Commission  has  adopted  a 
report under Article 126(3) TFEU for 18 Member States. These consist of Belgium, Bulgaria, 
Czechia,  Germany,  Greece,  Spain,  France,  Italy,  Latvia,  Lithuania,  Hungary,  Malta,  Estonia, 
Austria, Poland, Slovenia, Slovakia and Finland. For all these Member States except Finland, the 
report assesses their compliance with the deficit criterion. In the case of Lithuania,  Estonia and 
Poland,  the  report  was  prepared  due  to  a  planned  deficit  in  2022  exceeding  the  3%  of  GDP 
Treaty  reference  value,  whereas  the  other  Member  States  had  a  general  government  deficit  in 
2021  exceeding  3%  of  GDP.  In  addition,  for  Belgium,  France,  Italy,  Hungary,  Slovakia  and 
Finland the report assesses compliance with the debt criterion in 2021 based on outturn data. 

The Commission does not propose to open new excessive deficit procedures in spring 2022. 
The COVID-19 pandemic continues to have an extraordinary macroeconomic and fiscal impact 
that, together with the current geopolitical situation, create exceptional uncertainty, including for 
designing  a detailed path for  fiscal  policy. On these  grounds, the Commission considers that a 
decision on whether to place Member States under the excessive deficit procedure should not be 

23 In December 2021, the Commission presented a key initiative to stop the use of shell entities for tax purposes. The aim of the 
proposal (“UNSHELL”) is to ensure that entities in the European Union that have no or minimal economic activity are unable 
to  benefit  from  any  tax  advantages.  In  December  2021,  the  Commission  also  adopted  a  proposal  for  a  Directive  for  the 
implementation of a global minimum level of taxation (Pillar 2) in the EU. The proposal sets out rules to ensure a minimum 
level of taxation for large  multinational enterprises and large-scale domestic groups, thus contributing to both fair taxation 
and a sound business environment. Once the Directive is adopted by the Council, it will aim to put a floor on excessive tax 
competition between jurisdictions. 

13 

 
                                                           
taken. As regards Member States with a debt ratio above  the 60% of GDP reference value, the 
Commission  considers,  within  its  assessment  of  all  relevant  factors,  that  compliance  with  the 
debt  reduction  benchmark  would  imply  a  too  demanding  frontloaded  fiscal  effort  that  risks  to 
jeopardise  growth.  Therefore,  in  the  view  of  the  Commission,  compliance  with  the  debt 
reduction benchmark is not warranted under the current exceptional economic conditions. 

Romania is the only Member State under an excessive deficit procedure, based on the pre-
pandemic developments. On 3 April 2020 the Council decided that an excessive deficit existed 
in Romania based on planned excessive deficit in 2019. In its latest recommendation of 18 June 
2021, the Council asked Romania to put an end to the excessive deficit situation by 2024 at the 
latest. Romania’s general government deficit in 2021 and the fiscal effort in 2021 are in line with 
those recommended by the Council. Therefore, the procedure is kept in abeyance. 

The  Commission  will  reassess  Member  States’  budgetary  situation  in  autumn  2022.  The 
monitoring  of  debt  and  deficit  developments  will  continue  on  the  basis  of  the  2022  autumn 
Economic Forecast  and the 2023 Draft Budgetary  Plans to  be submitted  by  euro  area Member 
States  by  15  October  2022.  In  autumn  2022,  the  Commission  will  reassess  the  relevance  of 
proposing to open excessive deficit procedures. 

With the recovery during 2021, macroeconomic imbalances have overall started to recede 
again. Economic growth, together with appropriate and ambitious policy action, is expected to 
further reduce macroeconomic vulnerabilities. In particular, a swift implementation of the RRPs 
and  of  the  REPowerEU  plan  will  enhance  potential  growth,  increase  the  resilience  of  the  EU 
economies,  and  thereby  help  address  vulnerabilities  in  the  years  ahead.  In  the  context  of  the 
Macroeconomic  Imbalances  Procedure, 
identified  macroeconomic 
vulnerabilities related to imbalances and excessive imbalances in 10 out of the 12 Member States 
for  which  an  in-depth  review  was  carried  out.  Box  2  summarises  the  findings  regarding 
macroeconomic imbalances in the Member States; Appendix 4 provides more details on them.  

the  Commission  has 

Box 2: Macroeconomic imbalances in the Member States  

The  Commission  has  assessed  the  existence  of  macroeconomic  imbalances  for  the  12 
Member States selected for in-depth reviews in the 2022 Alert Mechanism Report. All those 
Member States  had  been identified with  imbalances or  excessive imbalances in  the last annual 
cycle of surveillance under the Macroeconomic Imbalances Procedure.  

The assessment of macroeconomic vulnerabilities is marked by a strong economic recovery 
from the COVID-19 crisis in a context of rising uncertainty in face of the surging  energy 
and commodity prices  and other impacts from  the Russian aggression of Ukraine. Private 
and public debt levels are easing as the economy rebounds from the crisis. Nonetheless, in many 
cases  they  remain  above  their  pre-COVID-19  levels,  reflecting  the  sharpness  of  the  economic 
contraction  in  2020,  and  the  measures  taken  to  support  the  economy.  External  rebalancing 
remains  incomplete:  the  current  accounts  of  large  net-debtor  countries  with  significant  cross-
border tourism sectors have improved, but remain below their pre-COVID-19 levels, while large 
current  account  surpluses  in  some  Member  States  persist  despite  some  temporary  reduction 
during  the  pandemic.  House  prices  are  growing  at  their  fastest  pace  in  over  a  decade.  The 

14 

 
banking  sector  weathered  the  pandemic  crisis  well,  although  some  risks  might  emerge  as 
moratoria on debt repayments have ended and temporary support measures are withdrawn.  

Overall,  vulnerabilities  are  receding  and  are  falling  below  their  pre-pandemic  levels  in 
various Member States; justifying a revision of the classification of imbalances in two cases. 
The  policy  agenda  embedded  in  the  RRPs,  as  well  as  past  policy  action  support  further 
adjustment  and  stronger  fundamentals  for  the  concerned  economies,  delivering  prospects  for  a 
continued  narrowing  of  vulnerabilities.  Economic  growth  will  support  further  adjustment  but 
countries  marked  by  low  potential  growth  could  face  challenging  dynamics.  Inflationary 
pressures are rising and tighter financing conditions and exchange rate volatility may weigh on 
debt servicing. This is a particular risk where private or public debt is held in foreign currencies, 
and where refinancing needs are substantial.  

- Ireland and Croatia are no longer experiencing imbalances. In Ireland, debt ratios have declined 
significantly over the years and continue to display strong downward dynamics. In Croatia, debt 
ratios  have  declined  significantly  over  the  years  and  continue  to  display  strong  downward 
dynamics.  

- Greece, Italy, and Cyprus continue to experience excessive imbalances.  

-  Germany,  Spain,  France,  the  Netherlands,  Portugal,  Romania,  and  Sweden  continue  to 
experience imbalances.  

Appendix 4 details the country-specific aspects for the 12 concerned Member States. 

5.  A  JOINT  EFFORT  BETWEEN  EU  INSTITUTIONS,  MEMBER  STATES  AND 
STAKEHOLDERS 

The  constructive  dialogue  with  Member  States  as  well  as  the  strengthened  inter-
institutional  dialogue  at  European  level  will  continue  throughout  the  European  Semester 
process. The intense policy dialogue on the RRPs allowed the Commission and Member States 
to strengthen and deepen their cooperation, which ensured broad ownership and is set to continue 
during  the  implementation  phase  of  the  plans.  The  resumption  of  country  reports  and  CSRs 
offers  a  further  opportunity  to  broaden  the  inter-institutional  and  bilateral  dialogue  building  a 
common understanding of evolving challenges and policy priorities. A continuous exchange on 
social  and  economic  developments  in  the  European  Union  is  ensured  by  the  biannual 
Macroeconomic Dialogue at political and technical level between the Council, the Commission 
and representatives of the European social partners. The Commission will also continue its close 
dialogue  with  the  European  Parliament  on  key  social  and  economic  developments,  and  will 
continue  to  engage  with  the  European  Parliament  before  each  key  stage  of  the  annual 
coordination cycle.  

The  successful  implementation  of  the  European  Semester  and  the  RRF  rests  on  the 
systematic involvement of social partners and other stakeholders at both EU and national 
levels. The active involvement of stakeholders, through dedicated regular meetings is important 
throughout  all  the  stages  of  the  European  Semester  and  the  RRF  implementation  process.  The 
Commission calls on all Member States to engage actively with  their social partners, local and 
regional authorities and other stakeholders, notably representatives of civil society organisations, 
through regular exchanges, drawing on the successful application of the partnership principle in 

15 

 
 
cohesion  policy  programming  and  implementation.  This  helps  to  jointly  identify  challenges, 
improve  policy  solutions,  and  ensures  broader  ownership  of  the  economic  and  social  policy 
agenda,  including  the  implementation  of  the  CSRs.  The  Commission  will  make  use  of  the 
existing  fora  under  the  European  Semester  to  inform  and  involve  social  partners  also  on  the 
implementation  of  the  RRF.  In  the  course  of  the  year,  the  Commission  will  also  adopt  a 
Communication  and  a  proposal  for  a  Council  Recommendation  on  strengthening  the  social 
dialogue at EU and national level.   

6. CONCLUSION 

Tackling continuous and newly emerging challenges will be crucial to ensure the resilience 
of  European  economies  and  societies  and  inclusive  and  sustainable  growth.  With  the 
reintroduction  of  country  reports  and  country-specific  recommendations,  the  new  cycle  of  the 
2022  European  Semester  focuses  on  a  sustainable  and  inclusive  recovery  based  on  the 
implementation of ambitious RRPs and the four dimensions of competitive sustainability as our 
compass for policy action, all in line with the UN Sustainable Development Goals. At the same 
time,  Russia’s  invasion  of  Ukraine,  and  the  impact  on  Member  States’  economies  is  a  stark 
reminder  of  Europe’s  strategic  challenges.  The  case  for  a  rapid  energy  transition  away  from 
fossil  fuels  has  never  been  stronger.  Further  decisive  steps  are  needed  towards  fostering 
economic  and  social  resilience,  ensuring  the  EU’s  security  of  energy  supply  and  reducing  our 
dependencies on fossil fuels from Russia well before 2030.  

Beyond  continuing  to  implement  the  RRPs,  Member  States  should  take  action  to 
implement  the  2022  CSRs,  which  reflect  remaining  and  emerging  challenges,  taking  into 
account  the  REPowerEU  plan.  This  year’s  streamlined  country  reports  identify  those 
challenges  that  are  only  partially  or  not  addressed  by  the  RRPs  along  the  four  dimensions  of 
competitive sustainability, including the additional reform and investment needs that can support 
the  implementation  of  the  REPowerEU  plan.  The  assessment  of  outstanding  and  emerging 
challenges  therefore  provides  the  backing  for  the  Commission’s  2022  CSRs  proposal.  Once 
adopted  by  the  Council,  these  recommendations  will  have  a  central  role  for  the  new  and 
dedicated  REPowerEU  chapters  in  Member  States’  RRPs,  in  line  with  the  relevant  Guidance, 
and they provide an orientation about further measures needed in the context of the REPowerEU 
plan.  

The Commission calls on the European Council to endorse and on the Council to adopt the 
Commission  proposals  for  the  2022  CSRs.  The  Commission  also  calls  on  Member  States  to 
implement the recommendations fully and in a timely manner, in close dialogue with their social 
partners, civil society organisations and other stakeholders at all levels. 

16 

 
APPENDIX 1 – OVERVIEW OF THEMATIC AREAS COVERED IN CSRs  

17 

Broad CategoryPolicy areasRenewable & energy infrastructure Energy efficiencyClimate adaptationEnvironment & resource managementTransportDigital connectivity, infrastructure & market functioning Digitalisation of businessDigitalisation of public administrationBusiness environnement (incl.SME policies)Single market, competition & state aidState-owned enterprisesPublic procurement & concessionsResearch & innovationLabour marketActive labour market policiesEqual opportunitiesWages & wage settingSkills, continuous VET & adult learningEarly childhood education & careEducation (General, initial VET & Higher education)Pension systems and active ageingPoverty, social inclusion & social protectionRegional development & local public servicesHealthcareLong-term careBudgetary framework and fiscal governanceTax PolicyTax administration, tax evasion & avoidanceFinancial services and financial stabilityAccess to finance & growth financingAnti-money launderingHousingPrivate sector debt & insolvency frameworkPublic administrationCorruptionQuality of Law MakingJustice SystemATBEBGCYCZDEDKEEELESFIFRHRHUIEITLTLULVMTNLPLPTROSESI SK= policy area covered in the country-specific recommendationsGreen TransitionDigital transition, productivity and single marketEmployment, social policies and fairnessMacroeconomic stabilityInstitutional resilience 
 
 
APPENDIX  2  -  PROGRESS  IN  THE  IMPLEMENTATION  OF  THE  COUNTRY-
SPECIFIC RECOMMENDATIONS 

The 2022 European Semester cycle takes stock of the Member States’ policy action taken to 
address  structural  challenges  identified  in  the  country  specific-recommendations  (CSR) 
adopted since 2019. Following the establishment of the Recovery and Resilience Facility (RRF) 
as a central tool to deliver EU and national policy priorities, the 2022 CSR assessment takes into 
account the policy action taken by  the Member States to date (24), as well as the commitments 
undertaken  in  the  recovery  and  resilience  plans  (RRP),  depending  on  their  degree  of 
implementation. Therefore, the assessment reflects the current early stages of implementation of 
RRPs  only,  rather  than  the  level  of  progress  that  could  be  achieved  assuming  a  full 
implementation  of the plans (25).  In line with  the scope of the RRF, the 2022 CSR assessment 
focuses  on  the  2019-2020  CSRs  (multiannual  assessment).  The  assessment  also  includes  the 
assessment of 2021 CSRs which only relate to fiscal policy (annual assessment). 

1:  Current 
Figure 
implementation of 2019-2020 CSRs 

level 

of 

Figure  2:  Implementation  of  2019-2021 
CSRs: 
each 
consecutive year versus implementation to 
date 

assessment 

annual 

in 

assessment 

The  multiannual 

Note: 
at 
implementation  of  2019-2020  CSRs  from  the  time  the 
recommendations  were  first  adopted  until  publication  of 
this  Communication.  The  2021  CSRs  only  relate  to  fiscal 
policy. 

looks 

24 Including policy action reported in the National Reform Programmes, as well as in the RRF reporting (bi-annual reporting on 
progress  with  the  implementation  of  milestones  and  targets  and  resulting  from  the  payment  request  assessment),  with  the 
exception of Member States which, by the cut-off date of this Communication, have not yet submitted a recovery and resilience 
plan or whose plan has not been approved (Hungary, Poland, the Netherlands).  

25  Member  States  were  asked  to  effectively  address  in  their  RRPs  all  or  a  significant  subset  of  the  relevant  country-specific 
recommendations. For the RRPs adopted by the cut-off date of this Communication, relevant CSRs are those adopted  by the 
Council in 2019 and 2020. The CSR assessment presented here takes into account the degree of implementation of the measures 
included in the RRPs and of those done outside of the RRPs at the time of assessment.  Measures foreseen in the annexes of the 
adopted  Council  Implementing  Decisions  on  the  approval  of  the  assessment  of  the  RRPs  which  are  not  yet  adopted  nor 
implemented but considered as credibly announced, in line with the CSR assessment methodology, warrant “limited progress”. 
Once  implemented,  these  measures  can  lead  to  “some/substantial  progress”  or  “full  implementation”,  depending  on  their 
relevance. 

18 

 
 
 
 
 
                                                           
From  a  multiannual  perspective,  at  least  some  progress  has  been  achieved  with  the 
implementation  of  63%  of  the  2019-2020  country-specific  recommendations  (see  Figure 
1).Compared to last year’s assessment, sizeable additional progress has been achieved regarding 
both  2019  CSRs  of  a  structral  nature  and  more  crisis-oriented  2020  CSRs.  However,  reform 
implementation differs significantly across policy areas. In particular, Member States have made 
most progress over the recent years in access to finance and financial services, followed by anti-
money laundering and business environment. On the other hand, progress has been particularly 
slow on pension systems, single market, competition and state aid, and housing. 

Progress  with  the  implementation  of  the  recommendations  adopted  in  2021  has  been 
sizeable.  Member  States  have  made  at  least  “some  progress”  in  almost  80%  of  the 
recommendations  addressed  to  them  in  July  2021,  which  had  only  been  issues  with  regard  to 
fiscal policies (Figure 2).  

The results of the 2022 CSR assessment, together with those of past years, will be available in 
June on the Commission website. 

19 

 
 
 
 
APPENDIX 3 – EU-WIDE PROGRESS ON SDG IMPLEMENTATION  

Note: The figure above shows the pace at which the EU has progressed towards each of the 17 goals over the most recent five-
year period according to the selected indicators. The method for assessing indicator trends and aggregating them at the goal-
level, as well as more detailed analyses are available on the Eurostat website: Overview - Sustainable development indicators - 
Eurostat (europa.eu). 

As  in  previous  years,  the  EU  has  made  the  strongest  progress  towards  fostering  peace  and 
personal  security  within  its  territory  and  improving  access  to  justice  and  trust  in  institutions 
(SDG  16)  in  the  observed  period  (overt  the  past  five  years  and  up  to  2021).  Significant 
improvements  were  also  achieved  on  economic  growth and the labour  market  (SDG 8),  which 
rebounded  in  2021  after  the  onset  of  the  COVID-19  pandemic,  and  on  innovation  and 
infrastructure (SDG 9). Progress towards reducing poverty and social exclusion (SDG 1) has also 
been significant but available data partly refer to the period up to 2019 only, and therefore do not 
fully  reflect  the  impacts  of  the  COVID-19  pandemic.  Progress  was  also  made  on  clean  and 
affordable energy (SDG 7) but this development was strongly affected by the 2020 remarkable 
reduction in energy consumption, as a result of COVID-19 related restrictions on public life and 
ensuing  lower  economic  activity.  Figures  also  do  not  yet  cater  for  latest  energy  developments 
related to the Russian invasion of Ukraine. 

The EU has also achieved good progress towards the goals on health and well-being (SDG 3), 
life  below  water  (SDG  14)  and  gender  equality  (SDG  5).  Less  progress  was  made  towards 
sustainable  cities  (SDG  11),  reduced  inequalities  (SDG  10),  responsible  consumption  and 
production (SDG 12), quality education (SDG 4), climate action (SDG 13) and zero hunger and 
sustainable agriculture (SDG 2). On clean water and sanitation (SDG 6) and global partnerships 
for the goals and governance (SDG 17), over the latest years for which data is available, the EU 
has been on a neutral path, showing a combination of almost equal sustainable and unsustainable 
developments.  On  the  contrary,  there  was  a  slight  backtrack  on  life  on  land  (SDG  15),  which 
reflects the fact that ecosystems and biodiversity remain under pressure from human activities. 

20 

 
 
APPENDIX  4  -  FINDINGS  OF  IN-DEPTH  REVIEWS  OF  MACROECONOMIC 
IMBALANCES IN EU COUNTRIES  

Imbalances or excessive imbalances have been identified in 10 out of the 12 Member States 
for which an in-depth review was carried out. 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.  

After sharp increases in 2020, private and government debt ratios are resuming their path 
of  gradual  reduction  in  most  cases.  The  increases  in  private  sector  and  government 
indebtedness that were driven by the sharp drop in GDP and the needed measures to cushion the 
fallout of the COVID-19 pandemic were on the whole limited to 2020. Indebtedness levels are 
now easing as the economy rebounds. However, the reductions have so far been limited in size 
and debts remain substantially above their pre-COVID-19 crisis levels in some cases. Reductions 
in  government  debt  ratios  have  been  particularly  small  and  reflect  the  important  support  that 
fiscal policies continued to deliver to the economy in 2021. Private debt developments have been 
more varied across Member States, with some visible declines.  

Going forward, economic growth spurred by a swift implementation of the Recovery and 
Resilience  Plans  will  support  further  deleveraging  but  risks  are  present.  The  uncertainty 
surrounding the economic outlook is elevated, in particular due to Russia’s invasion of Ukraine. 
Inflationary pressures are rising and tighter financing conditions and exchange rate volatility may 
weigh on debt servicing by corporations, households and governments. This is a particular risk 
where  debt  is  denominated  in  foreign  currencies,  where  interest  rates  are  variable  and  where 
financing  needs  are  higher.  At  the  same  time,  higher  inflation  eases  debt-to-GDP  ratios  via 
denominator effects. Structural shifts and labour shortages can result in wage acceleration, which 
may  raise  competitiveness  concerns.  A  swift  implementation  of  the  Recovery  and  Resilience 
Plans (RRPs) and the REPowerEU plan will enhance potential growth and increase the resilience 
of  the  EU  economies.  This  is  of  particular  importance  for  countries  marked  by  low  potential 
growth as it can help address their vulnerabilities in the years ahead, including those relating to 
high indebtedness. 

External  positions  are  improving  again.  The  current  accounts  of  large  net-debtor  countries 
with significant cross-border tourism sectors have started to improve but remain below their pre-
crisis  levels.  The  expected  continuation  of  the  recovery  of  international  travel  should  support 
further strengthening, but there are risks of disruptions from Russia’s invasion of Ukraine. Large 
current  account  surpluses  in  some  Member  States  persist,  with  marginal  changes,  due  to  the 
excess of savings over investment, while higher energy import prices are expected to reduce the 
current  accounts  of  nearly  all  Member  States.  Most  of  the  large  negative  net  international 
investment positions started to improve in 2021 supported by GDP growth and improved current 
accounts,  and  are  expected  to  improve  further  this  year  and  next.  The  inflow  of  Recovery  and 
Resilience Facility (RRF) funds will support the external position in a number of cases over the 
coming years. 

House prices have continued growing strongly, with buoyant demand meeting constrained 
supply.  Real  house  prices  have  further  accelerated  in  most  Member  States  in  2021,  in  some 
cases  recording  their  fastest  growth  in  a  decade.  Supply  constraints  that  were  already  present 

21 

 
before the pandemic can be expected to persist over the coming years. Expectations of tightening 
financing  conditions  in  recent  months  may  have  resulted  in  some  frontloading  of  purchase 
decisions, further fuelling price increases. Where price increases have occurred alongside high – 
and rising – household indebtedness, households and lenders may display increased vulnerability 
to downward corrections of house prices.  

The banking sector weathered the pandemic crisis well and is showing increased strength, 
benefitting  from  past  reforms.  Member  States  with  high  legacy  non-performing  loans 
continued to reduce them, sometimes substantially so. Nonetheless, non-performing loans could 
still increase as the full impact of the end of moratoria on debt repayments and the withdrawal of 
temporary  support  measures  related  to  the  COVID-19  pandemic  becomes  visible.  Finally,  a 
worsening of the economic outlook can also raise issues for banks' balance sheets, while higher 
interest  rates  should  help  banks'  profit  margins.  In  Member  States  with  a  strong  banks-
government nexus, increased financing costs for the sovereign may also pose a risk for banks. 

Table 1: FINDINGS FROM IN-DEPTH-REVIEWS BY MEMBER STATE 

Outcome of the 2021 IDRs 

Outcome of the 2022 IDRs 

No imbalances 

- 

HR, IE 

Imbalances 

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

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

Excessive imbalances 

CY, EL, IT 

CY, EL, IT 

Member States no longer experiencing imbalances 

Croatia,  identified  with  imbalances  in  2021,  is  found  to  experience  no  imbalances.  Important 
progress  has  been  made  in  reducing  private  indebtedness  and  net  external  liabilities.  General 
government debt remains high but has resumed the downward trajectory that delivered marked 
improvements  before  the  pandemic.  The  banking  sector  remains  stable  and  liquid,  with  a 
decreasing non-performing loans ratio. Potential output growth has increased, building on strong 
policy  action,  and  a  further  strengthening  based  on  a  strong  implementation  of  the  RRP  can 
address  remaining  vulnerabilities.26  On  current  forecasts,  both  private  and  government 
indebtedness  are  expected  to  continue  falling  with  the  external  position  strengthening  further 
benefiting also from the RRF funds. 

Ireland,  identified  with  imbalances  in  2021,  is  found  to  experience  no  imbalances.  Important 
progress has been made in reducing government and private indebtedness as well as net external 
liabilities,  both  before  and  since  the  pandemic.  The  reductions  of  the  debt  ratios  remain 
significant,  albeit  smaller,  when  national  output  is  adjusted  for  the  effects  of  the  operations  of 
multinational  enterprises  registered  in  Ireland.  Both  private  and  government  indebtedness  are 

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

22 

 
 
  
                                                           
expected  to  continue  falling,  with  the  external  position  strengthening  further.  Irish  banks 
continued reducing their non-performing loans ratio. High house price growth continues to be a 
challenge for housing affordability, but risks to macroeconomic stability appear contained so far. 
While  its  direct  impact  might  be  limited  due  to  its  comparatively  small  size,  the  RRP  has  the 
potential to help strengthen the fundamentals of the economy further.  

Member States experiencing imbalances 

France  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  government  debt  and  weak 
competitiveness,  which  have  cross-border  relevance,  in  a  context  of  low  productivity  growth. 
The COVID-19 crisis brought about a sizeable increase in the already high government debt, but 
with  the  economic  recovery,  the  government  debt-to-GDP  ratio  edged  down  in  2021  and  is 
forecast  to  keep  falling  this  year and next,  while remaining  well above its pre-pandemic level. 
Private  indebtedness  has  kept  growing  in  recent  years  and  is  exceeding  prudential  levels, 
although risks relating to increased corporate indebtedness are somewhat mitigated by a parallel 
build-up of liquidity buffers. Underlying productivity dynamics have remained stable over time. 
Exports  market  shares,  which  had  broadly  stabilised  in  earlier  years,  decreased  sharply  during 
the pandemic with key export sectors being severely hit but a sizeable recovery is projected for 
2022 and 2023. Cost competitiveness, as well as productivity, are set to benefit from recent and 
upcoming reforms, including a continued strong implementation of the RRP.  

Germany is experiencing imbalances. Vulnerabilities relate to a persistent large current account 
surplus, which reflects  subdued investment  relative to  savings, and has cross-border relevance. 
The current account surplus declined only slowly until 2020, and increased in 2021. It remains 
well beyond the levels suggested by the country's fundamentals, reflecting consumption restraint 
and  persistently  subdued  investment.  Corporate  investment  has  remained  below  the  pre-
pandemic  level  and  corporations  have  continued  to  post  strong  net  savings.  Residential 
investment  has  gradually  increased  from  a  low  level  but  supply  still  falls  short  of  housing 
demand.  Existing  barriers,  including  administrative  ones,  constrain  public  and  private 
investment. The current account surplus is likely to remain elevated even if expected to decline 
somewhat  in  2022  on  account  of  higher  commodity  prices.  Recent  announcements  to  promote 
investment  are  promising  and  the  RRP  is  geared  towards  addressing  investment  bottlenecks. 
Still,  further  resources  and  efforts  to  tackle  investment  bottlenecks  as  well  as  thorough 
implementation are key for promoting investment further.  

The  Netherlands  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  private  debt  and  a 
large  current  account  surplus,  which  carry  cross-border  relevance.  From  a  sector  perspective, 
high savings and low domestic investment of non-financial corporations are the main structural 
drivers  of  the  high  and  persistent  current  account  surplus,  which  is  well  beyond  the  levels 
suggested  by  the  country's  fundamentals  and  increased  further  in  2021.  Part  of  the  external 
surplus and its recent dynamics are linked to operations of some large multinational corporations. 
Going  forward,  the  surplus  will  likely  remain  high  as  its  main  drivers  remain  in  place.  Private 
sector  debt  remains  high  on  account  of  both  high  household  debt  and  corporate  debt,  the  latter 
partly on account of intra-group cross-border debt of multinationals. High household debt makes 
households more vulnerable to shocks, given that strong house price increases have contributed 
to  rising  debt  and  house  prices  appear  to  be  overvalued.  Household  debt  is  expected  to  remain 
elevated  in  light  of  continued  house  price  growth  and  of  distortions  in  the  housing  market  that 

23 

 
favour debt-financed home ownership in combination with a shortfall in housing supply. Limited 
policy steps have been taken but more needs to be done.  

Portugal  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  private,  government  and 
external  debt  in  a  context  of  low  productivity  growth.  Non-performing  loans  have  fallen 
considerably from high levels. After a temporary reversal in 2020 due to the COVID-19 crisis, 
those  vulnerabilities  resumed  their  downward  trajectory  in  2021.  The  current  account  balance 
turned  negative  in  2020  and  2021,  mainly  due  to  the  pandemic-driven  shock  in  the  tourism 
sector,  while  the  net  international  investment  position  improved  considerably  already  in  2021, 
even  beyond  its  pre-pandemic  level.  The  private  sector  and  government  debt-to-GDP  ratios 
resumed their downward trends in 2021 but remain above pre-pandemic levels and the former is 
still  exceeding  prudential  levels.  Going  forward,  private,  government  and  external  debts  are 
expected to continue narrowing on the back of economic growth. The external position will also 
directly benefit from the RRF funds. Policy progress has been made to address imbalances and a 
successful implementation of the RRP can help in further narrowing them, but policy challenges 
remain. 

Romania is experiencing imbalances. Vulnerabilities relate to external accounts, linked to large 
fiscal  deficits,  and  to  competitiveness  issues  that  are  re-emerging.  The  high  current  account 
deficit  further  worsened  in  2021  and  is  not  forecast  to  improve  this  year  or  next.  Large  fiscal 
deficits pre-date the COVID-19 crisis and have driven up the current account deficit which poses 
risks to external debt sustainability. Sovereign borrowing costs have increased since early 2021. 
The  expected  acceleration  in  wages  could  weigh  further  on  cost  competitiveness.  Nominal 
depreciation could mitigate competitiveness losses but add to inflationary pressures and increase 
the burden of serving debts in foreign currencies, which are significant for the government and 
the private sector. The negative net international investment position is expected to remain below 
its pre-pandemic levels. The external position is expected to benefit from significant RRF funds 
but  external  financing  can  otherwise  become  more  challenging  amid  tighter  global  financial 
conditions.  Recent  policy  initiatives,  including  the  successful  implementation  of  Romania’s 
RRP, can address some vulnerabilities, still further action is needed to improve competitiveness 
and potential growth. 

Spain is experiencing imbalances. Vulnerabilities relate to high external, government and private 
debt, in a context of high unemployment, and have cross-border relevance. In 2021, debt-to-GDP 
ratios  resumed  their  declining  trends  observed  before  the  pandemic  and  are  forecast  to  fall 
further this year and next. The current account records a small surplus and the net international 
investment position has reached its best reading since the mid-2000s. Yet private debt remains 
higher  than  before  the  COVID-19  crisis,  still  exceeding  prudential  levels,  while  the  high 
government debt-to-GDP ratio remains well above its pre-pandemic level. Non-performing loans 
continued to decrease, but some risks remain especially in energy-intensive sectors and those that 
were  previously  hit  hard  by  the  COVID-19  crisis.  Unemployment  started  to  decrease  again  in 
2021, but labour market segmentation and youth unemployment remain high, although past and 
recent  labour  market  reforms  and  the  continued  implementation  of  the  RRP  will  help  address 
Spain’s remaining vulnerabilities.  

Sweden  is  experiencing  imbalances.  Vulnerabilities  relate  to  high  and  rising  house  prices  and 
high  household  indebtedness.  In  2021,  house  prices  moved  further  away  from  fundamental 
values with supportive financial conditions continuing to fuel housing demand. High household 

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debt exposes Sweden to the risk of adverse shocks and a disorderly correction of housing prices, 
with potential harmful implications for the real economy and the banking sector. Private debt has 
risen further, a large share of which is concentrated in real estate, both commercial and housing, 
and  most  of  household  mortgage  debt  is  at  variable  interest  rates.  Policy  measures  have  not 
sufficiently  addressed  vulnerabilities  relating  to  housing  debt  and  potential  house  price 
overvaluations. Tax incentives for debt-financed housing remain, along with shortages in supply 
and identified shortcomings  in  the functioning of the  rental market.  Measures in  the RRP only 
address the vulnerabilities in a partially satisfactory manner. 

Member States experiencing excessive imbalances 

Cyprus  is  experiencing  excessive  imbalances.  Vulnerabilities  relate  to  high  government  and 
private  debt,  large  current  account  deficits  and  a  still  high  stock  of  non-performing  loans.  The 
government and private debt-to-GDP ratios declined again thanks to a strong economic rebound 
in 2021. Non-performing loans of the banking sector declined substantially thanks to large sales 
of such loans to credit acquiring companies but remain high. The current account deficit is large 
despite an improvement  in  2021, and moreover is projected to  widen in  2022 and only slowly 
narrow thereafter, thereby not ensuring a prudent net international investment position over the 
medium  term.  Government  and  private  debt-to-GDP  ratios  are  expected  to  further  improve,  in 
part on the back of economic growth. However, the economic outlook for 2022 is surrounded by 
heightened  uncertainty  related  to  the  impact  of  Russia’s  invasion  of  Ukraine  in  view  of 
particularly sizeable trade of services exposures. If implemented timely and effectively, the RRP 
has the potential to contribute to a significant reduction of vulnerabilities, but additional policy 
action is warranted. 

Greece  is  experiencing  excessive  imbalances.  Vulnerabilities  relate  to  high  government  debt, 
incomplete  external  rebalancing  and  high  non-performing  loans  in  a  context  of  low  potential 
growth and high unemployment. The government debt-to-GDP ratio resumed its decline, which 
is  projected  to  continue  thanks  to  improving  budgetary  outcomes  and  economic  growth.  The 
current account deficit still reflects the incomplete recovery from the sharp fall in foreign tourism 
in  2020  and  is  expected  to  remain  clearly  negative  this  year  and  next.  The  net  international 
investment position remains also largely negative, to a substantial extent reflecting government 
debt  mostly  held  by  official  sector  creditors.  It  may  however  improve  expressed  as  a  share  of 
GDP  thanks  to  economic  growth  and  inflows  of  significant  RRF  funds.  Despite  substantial 
progress, the share of non-performing loans remains high and hampers banks' ability to provide 
credit  to  firms  and  households.  Relevant  measures  have  been  taken  to  facilitate  economic 
adjustment  and  the  unwinding  of  vulnerabilities.  The  successful  implementation  of  the  RRP 
represents a major opportunity to address vulnerabilities and enhance potential growth.  

Italy  is  experiencing  excessive  imbalances.  Vulnerabilities  relate  to  high  government  debt  and 
weak  productivity  growth,  in  a  context  of  labour  market  fragilities  and  some  weaknesses  in 
financial  markets,  which  carry  cross-border  relevance.  Persistent  low  productivity  growth  has 
been a key factor behind Italy’s protracted weak GDP growth, which has dampened government 
debt  deleveraging,  dented  employment  opportunities  and  impacted  banks’  balance  sheets.  The 
government  debt-to-GDP  ratio  started  to  decline  in  2021  and  is  forecast  to  further  decline  but 
remains  a  risk  for  fiscal  sustainability,  the  financial  sector  and  economic  growth.  Despite 
improvements  in  the  labour  market,  low  participation  rates  persist.  Significant  improvements 
have  been  achieved  in  reducing  non-performing  loans,  although  the  sovereign-bank  nexus 

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reinforced  over  the  COVID-19  crisis  and  remains  a  challenge.  In  addition,  the  banking  sector 
may face challenges as the impact of the phasing-out of temporary support measures in response 
to the pandemic crisis fully unfolds. The RRP is addressing vulnerabilities, including by spurring 
competitiveness  and  productivity.  Nonetheless,  the  growth-enhancing  effect  of  investment  and 
reforms is likely to take time to unfold and crucially depends on swift and sound implementation. 

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