COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Sustainable Growth Survey 2023
Date: 2022-11-22
Institutions: European Commission, Secretariat-General
Subjects: EU energy policy, EU growth strategy, European Semester, competitiveness, digital single market, economic recovery, economic stabilisation, energy crisis, macroeconomics, sustainable development

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  EN 

   EUROPEAN COMMISSION  Strasbourg, 22.11.2022  COM(2022) 780 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK Annual Sustainable Growth Survey 2023  
 
 
1.  Introduction 

The swift, coordinated and united economic policy response to the pandemic has paid off: 
the post-COVID recovery of the EU economy has been the fastest since the post-war boom with 
real GDP expanding by 5.4% in 2021. In spite of the economic shock caused by Russia’s war of 
aggression against Ukraine, GDP growth in the EU remained robust in the first half of 2022 and 
stayed  positive  in  the  third  quarter,  beating  expectations.  Labour  markets  have  proved 
particularly  resilient,  having  benefitted  from  short-time  work  schemes  also  supported  by  the 
EU’s SURE mechanism  as well as  the reforms  and policies of the last decade. Unemployment 
has reached a record low and employment a record high. 

However, the EU economy is now at a turning point. High energy price pressures, erosion of 
households'  purchasing  power,  a  weaker  external  environment  and  tighter  financing  conditions 
are expected to tip the EU into a contraction this winter. Having outpaced wage growth, inflation 
is quickly eroding households’ purchasing power, with a negative impact on consumption. Cost 
increases, supply chain disruptions and tighter financing conditions are weighing on investment. 
As  strong  inflationary  pressures  continue  to  dent  demand  in  many  emerging  and  advanced 
economies, the external environment is unlikely to provide support for EU growth. On an annual 
basis, real GDP growth in the EU is set to slow from 3.3% in 2022 to only 0.3% in 2023, picking 
up to 1.6% in 2024. Inflation is expected to remain very high: it is set to peak at 10.7% in the 
fourth quarter of 2022. As inflationary pressures broaden to core goods and services, inflation is 
expected to ease only gradually to 7.0% in 2023 and 3% in 2024. Labour markets are likely to 
remain  robust  as  demand  for  labour  remains  high,  although  it  has  started  to  decline. 
Unemployment is  expected to  rise only slightly over the forecast  horizon, remaining  at  around 
6½%,  close  to  its  record  lows.  The  public  debt-to-GDP  ratio  in  the  EU,  which  increased 
markedly during the pandemic, is projected to decline marginally to 84.1% of GDP in 2024. The 
economic outlook remains surrounded by an exceptional degree of uncertainty, with risks tilted 
to the downside. The largest threat comes from adverse developments on the gas market and the 
risk of crippling shortages, especially in the winter of 2023/2024. Model simulations show high 
macroeconomic  costs  in  case  these  risks  were  to  materialise1.  Beyond  gas,  the  EU  remains 
directly  and  indirectly  exposed  to  renewed  shocks  to  commodity  markets  reverberating  from 
geopolitical tensions. 

Given  this  mix  of  challenges,  economic  and  social  policies  must  remain  coordinated  and 
agile, while staying on course with our long-term objectives. The EU stands in full solidarity 
with  Ukraine  in  response  to  Russia’s  aggression.  The  immediate  policy  priorities  requiring 
coordinated action at EU and national level include securing an adequate and affordable energy 
supply, safeguarding economic and financial stability, and protecting vulnerable households and 
companies, while preserving the sustainability of public finances and the integrity of the single 
market,  which  is  the  foundation  of  growth  and  prosperity  in  the  EU.  At  the  same  time,  more 
rapid action is needed to boost potential growth and quality job creation, deliver on the green and 
digital  transitions,  strengthen  resilience  and  increase  our  defence  capabilities  in  a  changing 

1 European Economic Forecast (Autumn 2022), European Economy – Institutional Paper, 187 (November). 

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global  context.  The  continued  implementation  of  the  European  Pillar  of  Social  Rights  is  also 
essential to deliver on the 2030 EU headline targets on employment, skills and poverty reduction. 
The implementation of the Union of Equality strategies2 is also crucial to achieve stronger social 
and economic resilience.  

The policy response to the energy crisis requires a combination of national and EU efforts, 
drawing  on  both  NextGenerationEU  and  the  Multiannual  Financial  Framework.  The 
effectiveness  of  the  EU  response  in  building  back  better  will  depend  on  being  combined  with 
effective policies at national and regional level. The Recovery and Resilience Facility (RRF), the 
heart  of  NextGenerationEU,  will  provide  a  continuous  stream  of  investment  in  European 
businesses, infrastructure and skills until 2026, at the same time supporting an ambitious reform 
agenda.  So  far,  payments  disbursed  under  the  Facility  are  worth  over  EUR  137  billion. 
Furthermore,  REPowerEU  will  provide  additional  resources  to  increase  the  resilience  of  EU 
energy systems and address energy poverty through targeted investments and reforms. This goes 
hand in hand with the implementation of cohesion policy programmes, which disbursed since the 
outbreak  of  the  pandemic  over  EUR  160  billion  to  increase  resilience  and  boost  social  and 
regional convergence, and with the national energy and climate plans3 to be updated by Member 
States by June 2023.  

The European Semester and the RRF continue to provide a robust framework for effective 
policy  coordination  in  view  of  the  current  challenges.  The  immediate  priorities  for  EU 
economic and social policy action are consistent with the existing priorities under the European 
Semester:  promoting  environmental  sustainability,  productivity,  fairness,  and  macroeconomic 
stability.  The  RRF,  integrated  in  the  European  Semester  of  economic  and  employment  policy 
coordination, remains key for supporting the reform and investment agendas in the years ahead. 
Together with cohesion policy, InvestEU and other funding programmes such as Horizon Europe 
or  Digital  Europe,  it  is  accelerating  the  twin  green  and  digital  transition,  boosting  social  and 
territorial  cohesion  and  thereby  strengthening  Member  States’  resilience.  This  includes  the 
forthcoming  introduction  of  dedicated  REPowerEU  chapters  into  the  recovery  and  resilience 
plans to tackle immediate energy-related priorities, in addition to actions supported by cohesion 
policy and other national or EU funds.  

This  year’s  Annual  Sustainable  Growth  Survey  outlines  an  economic  policy  agenda  to 
mitigate the negative impacts of energy shocks in the short term and to keep up efforts to 
support sustainable and inclusive growth and increase resilience in the medium term, while 
maintaining flexibility to tackle  new challenges.  The approach is  structured, like in  previous 
years,  around  the  four  dimensions  of  competitive  sustainability  and  in  line  with  the  UN 
Sustainable Development Goals, which are an integral part of the European Semester. For euro 

2 The Gender Equality Strategy 2020-2025, the EU Anti-racism Action Plan 2020-2025, the EU Roma strategic framework for 
equality, inclusion and participation for 2020-2030, the LGBTIQ Equality Strategy, the Strategy for the Rights of Persons with 
Disabilities 2021-2030 and the EU Strategy on combating antisemitism. 
3 Pursuant to Article 14 of Regulation (EU) 2018/1999, Member States will submit draft updated NECPs by June 2023, taking 
into consideration the 2022 and 2023 country-specific country recommendations (COM/2022/8263). National energy and climate 
plans will help in delivering the REPowerEU objectives by providing a framework for planning and encouraging the reduction of 
use of fossil fuels.  

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area  Member  States,  the  policy  priorities  are  translated  into  a  recommendation  for  a  Council 
recommendation on the economic policy of the euro area4. The communication also outlines the 
main  characteristics  of  the  2023  European  Semester  cycle  and  explains  the  main  changes 
compared to previous cycles, taking into account REPowerEU priorities and the need to adapt to 
evolving circumstances.  

2.  The  four  dimensions  of  competitive  sustainability:  stable  anchors  for  the 

fundamental transitions in challenging geopolitical times 

The  four dimensions  of  competitive sustainability are stable anchors  for  the coordination 
framework  of  EU  economic  and  employment  policies  in  the  face  of  structural  changes, 
while  also  providing  relevant  steer  to  tackle  the  short-term  challenges  in  the  current 
turbulent  times.  The  EU  must  continue  to  pursue  competitive  sustainability  and  social  and 
economic  resilience  hand  in  hand.  In  the  immediate  future,  support  measures  are  required  to 
cushion  the  impact  of  Russia’s  aggression  against  Ukraine  on  Europeans  and  EU  firms,  in 
particular small and medium-sized enterprises (SMEs). These measures need to be well-targeted 
to  vulnerable  households  and  particularly  exposed  businesses.  In  addition,  public  and  private 
investment,  coupled  with  reforms,  are  fundamental  to  delivering  more  secure  and  affordable 
energy supplies, making our economies and societies more resilient and exploiting opportunities 
from  the  green  and  digital  transitions.  This  includes  achieving  the  binding  targets  of  the 
European Climate Law. Implementing this deep transformation of the EU economy in a manner 
that  is  efficient  and  effective,  as  well  as  fair,  inclusive  and  democratic,  requires  coordinated 
action by the Member States.   

Graph 1: The four dimensions of competitive sustainability – addressing short- and 
medium-term challenges  

4 COM(2022) 782. 

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2.1 Environmental sustainability 

The current energy crisis has underlined the need for reliable and clean energy sources and 
well-functioning  EU  energy  markets,  also  putting  further  emphasis  on  the  EU’s  climate 
objectives.  The  Commission  has  proposed  several  exceptional  policy  initiatives  aimed  at 
addressing  the  immediate  consequences  of  the  current  energy  crisis  on  households  and 
businesses, while delivering sufficient clean, secure and affordable energy and access to critical 
raw materials. A crucial part of this policy response is the REPowerEU plan, with the objective 
to end the EU's dependence on Russian fossil fuels and to speed up the clean energy transition. 
REPowerEU  focuses  on  three  pillars:  diversification  of  energy  supplies,  energy  savings  and 
efficiency, and accelerated roll-out of renewable energy. It operates in full consistency with the 
European  Green  Deal  and  builds  on  the  Fit  for  55  objectives  by  proposing  to  increase  the 
ambition on energy efficiency and renewables. Following the REPowerEU Communication5, the 
Commission and Member States have  set  up  the EU Energy Platform  to  strengthen  security of 
supply  at  affordable  prices.  Based  on  Commission  proposals,  the  Council  swiftly  adopted  the 
Regulation  on  gas  storage  and  emergency  interventions  including  a  new  legislative  instrument 
and  a  European  gas  demand  reduction  plan  to  reduce  gas  demand  in  the  EU  by  15%  by  next 
spring. On 6 October 2022, it was followed by a Council agreement on emergency measures to 
reduce energy prices (see below). On 18 October, the Commission put forward a proposal on a 
joint  gas  purchasing  mechanism,  a  complementary  benchmark  on  liquefied  natural  gas  (LNG) 
supplies, a market correction mechanism and applicable arrangements for solidarity agreements. 

In the short term, the EU must balance energy supply and demand and tackle rising energy 
costs, while preserving incentives for the green transition. Following Commission proposals, 
the Council adopted new rules on coordinated demand reduction measures for gas on 5 August 
2022 and it adopted the emergency intervention on 6 October 2022 to address high energy prices 
by reducing peak and overall electricity demand. The measures also include a temporary revenue 
cap  on  inframarginal  electricity  producers,  namely  technologies  with  lower  costs,  and  a 
temporary solidarity contribution on excess profits generated from activities in the oil, gas, coal 
and refinery sectors  that  are not  covered by the  inframarginal  revenue  cap. The revenues from 
the  solidarity  contribution  would  be  redirected,  amongst  others,  to  energy  consumers,  in 
particular  vulnerable  households,  hard-hit  companies,  and  critical  ecosystems  such  as  energy-
intensive industries while maintaining investment  incentives for the green transition. As policy 
measures to mitigate the economic and social impact of high energy prices in one Member State 
also  affect  others,  they  should  be  coordinated  at  EU  level  to  ensure  their  effectiveness  and 
include investments in cross-border projects. To safeguard the single market, take advantage of 
possible  synergies  and  prevent  fragmentation,  common  EU-solutions  should  be  pursued.  The 
support is meant to address the current crisis conditions and should therefore remain temporary, 

5 COM(2022) 108 final. 

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but in line with the medium-term objective of phasing out fossil fuel and other environmentally 
harmful subsidies. 

Today’s energy crisis also shows the need to make rapid progress on the green transition, 
including by scaling up and speeding up of the rollout of renewables. This entails a paradigm 
shift in the way we produce, trade, secure and use energy, in line with EU’s medium and long-
term objectives. Since 2015, the energy union has been guided by the aims of energy security, 
energy affordability, and clean energy, which is also the way out of the crisis today. The required 
systemic transitions aim to deliver on our climate and environmental objectives and at the same 
time  create  opportunities  for  our  economy  and  long-term  competitiveness.  Reducing  the  fossil 
fuel  dependence  from  Russia  and  accelerating  the  EU  energy  transition  away  from  fossil  fuels 
requires an estimated EUR 210 billion of additional investments by the end of 20276. This comes 
on top of the annual investment  needs identified for the Fit for 55 package. These investments 
will  benefit  EU  industries  developing  transformational  technologies  and  innovations  and  boost 
the capacity for decarbonised, home-grown and affordable energy, notably when combined with 
measures to  simplify  and speed up  permit  procedures and  remove  other  administrative barriers 
that slow the deployment of renewable energy  sources. In turn, they will spur job creation and 
opportunities  for  job-to-job  transitions  based  on  the  up-  and  reskilling  of  the  workforce,  while 
increasing the EU’s open strategic autonomy. Besides strengthening energy efficiency measures 
and  accelerating  the  rollout  of  renewables,  REPowerEU  also  increases  the  ambition  on 
renewable  hydrogen  as  a  key  component  of  the  plan  to  substitute  natural  gas,  coal  and  oil  in 
hard-to-decarbonise industries and transport7. REPowerEU sets a target of 10 million tonnes of 
domestic renewable hydrogen production and 10 million tonnes of renewable hydrogen imports 
by 2030. To help boost renewable hydrogen production, the Commission announced the creation 
of  a  European  hydrogen  bank.  Structural  reforms  could  also  leverage  these  investments,  for 
example  by  aligning  taxation  systems  with  environmental  objectives  and  applying  the  polluter 
pays principle or by streamlining procedures.  

As  climate  change  and  environmental  degradation  are  an  existential  challenge  and 
dependence on fossil fuels puts our societies in jeopardy, the European Green Deal remains 
our compass. This year, Europe has faced severe heat waves and extreme droughts resulting in 
more  severe  forest  fires.  This  clearly  shows  the  impact  climate  change  has  on  our  lives  and 
livelihoods. Since December 2019, the European Green Deal supports decarbonisation, the shift 
to  a  circular  economy,  the  protection  of  biodiversity  and  ecosystems  and  a  just  transition.  In 
particular, the Fit for 55 package will drive a deep transformation of the EU economy, including 
energy,  transport  and  industry  in  line  with  the  EU’s  goals  enshrined  in  the  European  Climate 
Law  to  reduce  emissions  by  at  least  55%  by  2030  and  to  become  the  first  climate-neutral 
continent by 2050. Member States should translate these higher ambitions into greater action in 
their updated national energy and climate plans due in draft and in final form by June 2023 and 
2024,  respectively.  Further  to  decarbonisation,  Member  States  are  called  to  enhance  their 

6  Figures  based  on  SWD(2022)  230  final.  Member  States  should  also  make  sure  to  use  at  least  50%  of  revenues  from  the 
auctioning of allowances under the EU Emissions Trading System for climate and energy-related purposes. 
7 Other forms of fossil-free hydrogen, notably nuclear-based, also play a role in substituting natural gas.  

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resilience  to  climate  change.  Strategies  on  biodiversity,  the  circular  economy,  zero  pollution, 
sustainable agriculture and food, sustainable mobility and adaptation to climate change are core 
policies of the European Green Deal, now being implemented. 

In complementarity with other EU funds, such as cohesion policy and InvestEU, the RRF 
will  be  an  essential  delivery  tool  for  implementing  REPowerEU  at  national  level,  while 
supporting the objectives of the European Green Deal. Member States will contribute to the 
joint  EU  response  to  the  current  challenges  by  strengthening  existing  recovery  and  resilience 
plans  in  line  with  the  REPowerEU  objectives,  with  dedicated  REPowerEU  chapters.  These 
chapters should focus on relevant reforms and investments, in order to boost the deployment of 
renewable  energy  and  other  clean  technologies  and  the  necessary  infrastructure  in  the  energy 
sector,  as  well  as  increase  energy  efficiency  to  reduce  energy  consumption.  REPowerEU 
measures  will  benefit  from  synergies  with  green  transition  measures  already  supported  by  the 
RRF in its current form as well as by cohesion policy funds8 and the InvestEU programmes9, for 
example  in  reducing  air  pollution,  promoting  the  circular  economy  and  resource  efficiency  or 
restoring  and  protecting  biodiversity,  and  should  be  accompanied  by  further  efforts  to  boost 
skills for the twin transitions10.  

2.2 Productivity 

Strengthening  EU  competitiveness  and  its  long-term  potential  for  sustainable  growth 
remain  key  for  economic  prosperity  and  social  welfare.  Record  inflation,  including  record-
high energy prices and supply constraints, is posing a challenge to many EU firms, in particular 
energy-intensive  ones  and  SMEs.  It  is  forcing  some  businesses  into  temporary  production 
curtailment  or  to  close  permanently.  Non-ferrous  metals  (aluminium  and  zinc),  ferro-alloys, 
fertilisers,  steel  and  glass  are  the  sectors  facing  the  biggest  challenges11.  Whereas  capacity  is 
shrinking in the EU, new capacity increases are happening outside the EU, resulting in a risk of 
permanent  losses  in  production  capacity  and  of  market  shares  for  European  companies,  and 
usually with a much higher carbon footprint. For sectors competing globally, closures in Europe 
mean  increasing  import  dependencies.  In  the  short  term,  cushioning  the  impact  of  high  energy 
prices on the most affected viable firms cannot be at the expense of the level-playing field and 
integrity  of  the  single  market.  In  September  2022,  the  Commission  presented  a  Single  Market 

8  Cohesion policy  support  to  the  European  Green  Deal  will  be  reinforced  in  the  2021-2027  programmes.  Cohesion policy  has 
contributed EUR 85 billion to climate and environment action under the 2014-2020 multiannual framework. The approval of the 
2021-2027 cohesion policy programmes will make a further EUR 100 billion available for the green transition, including some 
EUR 40 billion for investment in renewable energy, energy efficiency and energy networks. 
9 In line with the European Green Deal objectives, at least 30% of the InvestEU Programme will support investment funding that 
contributes  to  EU’s  climate  objectives.  Furthermore,  60%  of  the  investments  supported  under  the  “Sustainable  Infrastructure 
Window” of the InvestEU Fund will contribute to EU’s climate and environmental objectives. 
10 The Commission is supporting Member States through the Technical Support Instrument in identifying reforms and 
investments to phase out fossil fuel imports from Russia. 
11 In November 2022, the Commission presented its Communication  “Ensuring availability and affordability of fertilisers” that 
outlines  measure  to  maintain  a  sustainable  European  fertilisers’  production,  optimise  use  and  reduce  dependency  on  mineral 
fertilisers. 

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Emergency  Instrument12  to  preserve  the  functioning  of  the  single  market  and  of  EU  supply 
chains in times of crisis. The instrument also aims to ensure the free movement and availability 
of essential goods and services, including for EU's SMEs. For durable progress on productivity 
and  competitiveness,  reforms  and  investments  are  needed  to  decarbonise  industrial  processes, 
address  labour  force  shortages  and  skill  mismatches,  reduce  administrative  and  regulatory 
burdens, improve insolvency frameworks and tackle systematic late payments.  

Robust  supply  chains  should  ensure  the  EU’s  security  of  supply  and,  at  the  same  time, 
ensure  global  competitiveness.  Temporary  or  persistent  bottlenecks  in  supply  chains  bear 
negative consequences across the EU’s economy and its industrial sectors. In particular, the EU’s 
commitment  to  the  twin  transitions  will  increase  the  needs  for  specific  goods  (for  example 
certain  raw  materials)  and  technologies  (for  example  batteries),  exacerbating  supply  and  price 
pressures. Member States have a key role to play in curbing strategic dependencies by promoting 
the  sustainable  exploitation  of  available  resources  in  the  EU,  maximising  the  potential  of  the 
circular  economy,  supporting  the  EU’s  trade  agenda  to  secure  and  increase  a  diversified  and 
sustainable  supply  of  raw  materials  from  non-EU  countries,  and  addressing  supply  chain 
disruptions.  In  this  context,  the  economic  diversity  of  EU  regions  can  be  a  source  of 
competitiveness and resilience for the Union. The EU has the ambition to become the main hub 
for  innovative  and  cutting-edge  green  and  transformational  technologies,  making  use  of  the 
openness  of  our  economy.  The  upcoming  Critical  Raw  Materials  Act  will  also  contribute  to 
addressing Europe’s strategic dependencies. The EU’s trade agenda contributes to the resilience 
of  raw  materials  supply  chains  by  ensuring  rules-based  open  trade  and  investment  in  raw 
materials  and  by  removing  distortions  to  international  trade,  through  bilateral  trade  and 
investment agreements and work in the World Trade Organisation13. 

A proper functioning single market, where fair and effective competition is ensured, is key 
to boosting productivity and growth. The functioning of the single market should not be taken 
for granted, and concrete efforts are needed to deepen it, in particular for services. There are still 
restrictive  regulatory  practices  that  have  a  negative  impact  on  the  functioning  of  markets. 
Restrictions on exports and the circumvention of EU public procurement rules have a negative 
impact  on  the  functioning  of  markets.  With  high  inflation  weighing  heavily  on  consumers’ 
purchasing  power,  restrictive  regulatory  frameworks  in  retail  services  should  be  addressed. 
Growth  and  productivity  are  best  supported  by  competitive  and  efficient  markets  that  avoid 
volatility  in  prices  as  well  as  structural  reforms  that  remove  bottlenecks  in  the  business 
environment at national and regional level. Good governance and respect for the rule of law, in 
particular  independent,  quality  and  efficient  justice  systems14,  functioning  and  effective  tax 
systems, as well as effective insolvency and robust anti-corruption and anti-fraud frameworks are 
key determinants of an economy that works for people. In this context, the proposal for a single 

12 COM(2022) 459 final.  
13  EU’s  most  recent  trade  agreements  (UK,  Chile,  Mexico,  New  Zealand)  include  specific  commitments  on  energy  and  raw 
materials. 
14 In addition to the European Semester, the Commission’s Rule of Law Report also covers in one of its pillars the functioning of 
justice systems. 

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set  of  tax  rules  for  doing  business  in  Europe  -  BEFIT15  and  the  continued  modernisation  and 
digitalisation  of  tax  administrations  should  help  reduce  compliance  costs,  minimise  aggressive 
tax  planning  and  tax  avoidance  opportunities,  while  supporting  EU  jobs  and  investment  in  the 
single  market.  An  appropriate  tax  mix  and  effective  revenue  collection  are  instrumental  in 
adapting for the future by  ensuring  fair, efficient and  environmentally sustainable competition, 
facilitating  the  green  and  digital  transitions  and  responding  to  the  fiscal  impact  of  population 
ageing.  Connectivity  across  the  single  market  should  be  further  increased  with  greater 
investments in the transport, energy and digital infrastructure.  

Investments and reforms for the digital transition remain essential to strengthen the EU’s 
economic base, promote business creation and entrepreneurship among SMEs, and enable 
the swift implementation of the European Green Deal. Digital technologies enable businesses 
to  gain  competitive  advantage,  improve  their  services  and  products  and  expand  their  markets, 
and have the potential to support the green transition. While large firms are more likely to adopt 
new digital technologies, the digitalisation level of SMEs remains uneven across Member States 
and  economic  sectors.  While  some  SMEs  are  frontrunners  in  the  digital  transformation,  many 
more  traditional  SMEs  lack  the  financial  resources  and/or  skills  to  reap  the  benefits  of 
digitalisation. More progress is needed on digitalisation to act as an enabler for SMEs to increase 
the efficiency of their production processes and their ability to innovate via the development and 
adoption of advanced technologies.  

Increased productivity requires a workforce with the relevant skills and the modernisation 
of education and training, offering equal opportunities for all. The future competitiveness of 
the  EU  depends  to  a  large  degree  on  the  skillset  of  Europeans.  The  development  of  high-end 
skills in higher education institutions, together with reskilling and upskilling strategies mitigate 
skill shortages in the labour market and address the changing needs during the green and digital 
transition as the economy becomes more technologically driven16. This is why the Commission 
has proposed to make 2023 the European Year of Skills and has launched a structured dialogue 
on digital education and skills. The Digital Economy and Society Index shows that 4 in 10 adults 
in  the  EU  lack  basic  digital  skills.  Despite  accounting  for  the  majority  of  tertiary  graduates, 
women  are  under-represented  in  tech-related  professions  and  studies,  with  only  2  out  of  5 
scientists  and  engineers  and  less  than  20%  ICT  specialists  being  women17.  Investments  and 
inclusive policies to support of both science, technology, engineering and mathematics (STEM) 
studies  and  (basic)  digital  skills  are  therefore  essential  to  accelerate  the  development  and 
adoption  of  advanced  digital  technologies  and  support  the  uptake  and  diffusion  of  innovation 
across our economies and shape the digital  and green transition. Tackling the digital skills  gap 
and  promoting  projects  and  strategies  to  improve  digital  skills  at  all  levels  in  the  EU  is  of 
paramount importance to increase productivity across economic sectors and firms, especially in 

15 Business in Europe: Framework for Income Taxation. 
16 Access to skills has become a key challenge for SMEs, which have difficulties competing with large companies. Among other 
actions, the EU is using the European Pact for Skills, a flagship of the European Skills agenda, to boost upskilling and reskilling 
including in SMEs, through the Large Scale Skills partnerships, and by taking advantage of 2023 as the European Year of Skills. 
17 COM(2022) 526 final. 

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SMEs and to contribute to a broad and effective use of digital tools and services (e.g.  in public 
administration). 

Investing in research and innovation capacity is investing in Europe’s future. Future income 
and  sustainable  prosperity  in  the  EU  will  crucially  depend  on  higher  productivity,  skills  and 
innovation. The RRF, InvestEU, the recently launched renewed European Research Area, New 
European Innovation Agenda and EU missions will also help to address the gap in research and 
innovation investments and activity compared to the EU’s main competitors by mobilising fresh 
funding  for  R&I  and  improving  the  conditions  for  financing,  innovation  skills  and  better 
coordinated  R&I  policies  in  Europe.  Research  and  innovation  are  vital  to  accelerate  the  green 
and  digital  transition,  as  well  as  to  support  other  key  objectives  such  as  improving  people’s 
health,  developing  open  strategic  autonomy  and  making  our  economies  more  competitive. 
Particularly  in  the  current  context,  we  need  to  accelerate  innovation  and  investment  in 
transformational  technologies  –  wind,  solar,  hydrogen,  heat  pumps  and  smart  electricity 
networks – and their deployment.  

2.3 Fairness  

In 2021 and in the first half of 2022, economic growth supported strong performance in EU 
labour markets, with a significant  increase  in  employment rates. The EU employment rate 
grew  throughout  2021  and  reached  a  record  74.8%  in  Q2-2022.  At  the  same  time,  despite  a 
recent drop in youth unemployment, the rate of  young people not in education, employment or 
training  remains  high  (11.7%  in  Q2-2022).  The  risk  of  poverty  or  social  exclusion  remained 
stable  throughout  the  pandemic,  even  if  around  1  in  5  people  were  still  at  risk  of  poverty  or 
social exclusion in  2020 and in  2021. This  successful rebound of the labour market  and broad 
stability  in  social  indicators  reflect  the  positive  impact  of  the  measures  taken  during  the 
pandemic by Member States. It includes support from the EU18, the stabilising effect of welfare 
systems, as well as successful structural reforms implemented over the past decade.  

However,  steep  rises  in  energy  prices  and  inflation  imply  significant  negative  impacts  on 
the  purchasing  power  of  households  and  on  the  activity  of  European  companies,  also 
creating risks of deterioration of the labour market. The higher energy prices are leading to 
higher cost of doing business and consequently to a reduction in working hours and a higher risk 
of job losses and in various sectors, compounded by falling demand. The impact on jobs will be 
shaped  by  the  sectoral  composition  of  economies,  their  sources  of  value  generation  and  their 
dependency on energy-intensive value chains. As a result, the employment effects are expected 
to significantly differ by sector, by gender and by region. 

Households  continue  to  be  severely  affected  by  high  energy  prices,  increasing  the  risk  of 
energy  poverty  and  calling  for  targeted  and  coordinated  measures.  For  low-income 
households, food and energy represent higher shares of their consumption baskets, which makes 
them  particularly  exposed  to  the  current  price  hikes.  Member  States  have  already  taken 

18 In particular, the Support to mitigate Unemployment Risks in an Emergency (SURE) instrument. 

9 

 
 
                                                           
substantial  measures  to  alleviate  the  impact  of  high  energy  prices  on  households.  However,  as 
explained  in  the  next  section,  more  than  70%  of  supporting  measures  in  2022  have  not  been 
targeted. While price pressures are spreading beyond energy, and resources remain limited, it is 
increasingly important that support measures are targeted to vulnerable households and that they 
retain incentives to reduce energy consumption and promote energy efficiency. Better targeting 
allows those measures to be effective in preventing energy poverty and poverty in general from 
rising, while not adding to inflation and limiting the budgetary impact. Moreover, measures that 
target disadvantaged groups perform better in terms of macroeconomic stabilisation. As part of 
REPowerEU, the Commission is proposing with SAFE (Supporting Affordable Energy) a more 
flexible use of the cohesion policy funds  allocations for 2014-2020 to help Member States and 
regions support vulnerable households and companies and to preserve jobs19. 

Strong social dialogue can help  in  ensuring that wage setting mitigates purchasing power 
losses,  in  particular  for  low  earners,  while  limiting  the  risk  of  second  round  effects  on 
inflation  and preserving employment and competitiveness. While nominal wages picked up 
in  2021  and  accelerated  in  2022,  high  inflation  resulted  in  falling  real  wages.  Wage  growth  in 
2021 was mainly driven by the increase in hours worked and the strong economic rebound that 
followed the COVID-19 crisis. In 2022, high inflation and labour shortages started triggering an 
acceleration  in  nominal  wages.  However,  wage  growth  remained  below  inflation.  Effective 
collective  bargaining  is  key  to  achieving  overall  wage  developments  that  are  in  line  with 
changing macroeconomic conditions, while at the same time avoiding the risk of a de-anchoring 
of  inflation  expectations.  Updating  minimum  wages  (in  line  with  the  Directive  on  adequate 
minimum  wages)  plays  a  key  role  to  protect  the  purchasing  power  of  low  wages.  The  above-
mentioned  targeted  and  temporary  support  measures  can  also  play  and  important  role,  where 
profitability levels in some companies and sectors are under stress. Wage adjustments are further 
influenced by the sectors’ specificities and the level of flexibility of the economy,  while in the 
medium  term,  purchasing  power  is  protected  by  wage  improvements  in  line  with  increases  in 
productivity and potential growth.  

Effective  labour  market  policies  remain  key  to  supporting  workers  and  promoting  job 
transitions,  especially  as  labour  and  skills  shortages  continue  to  be  prevalent  in  the  EU. 
Labour  shortages  are  affecting  certain  sectors  in  particular  such  as  health  care,  education, 
hospitality  and  tourism,  construction,  ICT,  and  sectors  linked  to  the  green  transition.  Lay-offs 
that took place as a result of the COVID-19 pandemic created additional shortages especially in 
sectors where flexible contracts are used most, as not all workers returned once demand started 
to  recover.  As  a  temporary  surge  in  production  costs  poses  risks  to  jobs,  short-time  work 
schemes help preserve employment and firm-specific human capital. They should be designed in 
a way that supports restructuring processes by easing job transitions, including via upskilling and 
reskilling.  

19  In  addition, Member  States  can  continue  to  draw  from  EU  funds  such  as  the  Fund  for  European  Aid  to  the  Most  Deprived 
(FEAD),  which supports EU countries' actions to provide food and/or basic material  assistance to  the most deprived, reaching 
over 15 million people with food aid. 

10 

 
 
                                                           
Active labour market policies, training and up- and reskilling measures provide support to 
employment and  social inclusion. They  can  also  play a central  role in  delivering on the twin 
transition20.  The digitalisation of the economy,  which  accelerated  rapidly  during the pandemic, 
has  generated  a  greater  demand  for  digital  skills  at  all  levels.  Similarly,  ending  the  EU’s 
dependence  on  fossil  fuels  and  achieving  climate  neutrality  also  requires  measures  to  be 
refocused  on  upskilling  and  reskilling  people  in  different  industrial  sectors  and  supporting  job 
transitions21. Despite good progress in most Member States, long-standing challenges in relation 
to  the  employment  of  young  people,  women  and  disadvantaged  groups,  such  as  persons  with 
disabilities,  Roma  and  people  with  a  migrant  background  –  including  displaced  people  from 
Ukraine22 – should be addressed with specific and tailored policy actions at national and regional 
level, and making full and effective use of available EU funding.  

Adapting  education  and  training  systems  is  key  to  developing  the  skills  needed  in  our 
economies, but teacher shortages may hamper efforts. Member States face increasing teacher 
shortages  at  all  education  levels,  including  in  early  childhood  education  and  care,  and 
particularly in subjects most relevant for the twin transition. Increasing the attractiveness of the 
teaching  profession,  particularly  in  subjects  and  regions  most  affected  by  teacher  shortages,  is 
key to  equipping more  young people and lifelong learners with the  skills most in demand now 
and  in  the  future  on  the  changing  labour  markets.  Similarly,  improving  equity  in  education, 
including in early childhood, will be essential after a pandemic that increased the impact of the 
socio-economic  background  on  the  learning  outcomes  of  disadvantaged  children  and  young 
people,  including  those  with  migrant  or  minority  ethnic  background.  Investing  in  quality, 
accessible  and  affordable  early  childhood  education  and  care  is  also  key  to  facilitate  women’s 
labour market participation. 

The pandemic has  highlighted  the importance  of resilient and sustainable healthcare  and 
long-term  care  systems  that  can  rapidly  respond  to  health  emergencies,  while  preserving 
the  quality  and  accessibility  of  care  for  other  health  conditions.  While  progress  was  made 
during  the  pandemic,  several  Member  States  need  to  make  further  progress  on  the  resilience, 
quality and accessibility of their healthcare and long-term care systems, including the challenge 
of shortages in the health workforce. The pandemic revealed the need for increased vigilance and 
investment in all Member States to ensure that they are adequately prepared to deal with future 
health  crises23  and  are  also  able  to  preserve  the  quality  of  care  for  all  other  illnesses  and 
conditions.  Accelerating  the  European  Green  Deal  can  further  benefit  health  systems  (for 

20 See the Commission Recommendation for Effective Active Support to Employment.   
21 The national skills targets put forward by Member States in response to the EU headline target will help guide the up- and re-
skilling  efforts  in  the  Member  States,  in  line  with  their  reform  plans  and  also  with  the  support  of  EU  funding.  The  upcoming 
exercise on updating national energy and climate plans, planned for 2023-24, will further help reflect relevant employment, skills 
and social aspects in climate and energy policies. 
22 Member States have provided assistance and safety to displaced persons, mostly women and children, fleeing Ukraine. This 
also resulted from the triggering in March 2022 – for the first time – of the Temporary Protection Directive, granting displaced 
persons from Ukraine the right to live and work in the EU until 2024. 
23  This  includes  ensuring  and  investing  in  surge  capacity,  adequate  stocks  of  supplies  (and  manufacturing  capacity),  the 
availability and effectiveness of contact tracing systems, testing and laboratory capacity, qualitative and accessible health datasets 
and health data sharing including through early warning and surveillance systems.  

11 

 
 
                                                           
example, via the zero pollution action plan as part of the European Green Deal) as one in eight 
premature deaths in the EU is linked to environmental pollution. 

Preserving and improving the adequacy and sustainability of  social safety nets remains  a 
priority  in  the  current  economic  situation.  In  some  Member  States,  low  levels  of  adequacy 
may  result  in  benefits  that  are  not  keeping  pace  with  increases  in  costs  of  living  for  the 
vulnerable households. At the same time, income support schemes should be well targeted  and 
include  appropriate  incentives  and  support  for  the  beneficiaries  that  are  able  to  work  to 
reintegrate  into  the  labour  market24.  Ensuring  social  protection  coverage  for  non-standard 
workers  and  the  self-employed  remains  crucial.  Similarly,  in  the  context  of  an  adverse 
demographic  trend  and  changing  labour  markets,  ensuring  the  adequacy  and  financial 
sustainability of pension systems remains particularly important25. The same goes for providing 
access to affordable, quality and sustainable long-term care. 

Regional disparities and demographic change compound the challenges linked to the green 
and  digital  transition.  The  EU’s  working  age  population  is  declining,  which  contributes  to 
existing labour shortages and hampers the growth potential and competitiveness of businesses. In 
many  regions,  in  particular  in  rural  areas,  the  impact  of  population  ageing  is  magnified  by 
outward migration. This adds to the challenge of ensuring the availability of a skilled workforce 
to build economies well-equipped for the green and digital transition. Moreover, the pronounced 
and persistent innovation divide in Europe hinders the ability of many lagging regions to reach 
higher levels of prosperity. The capacity of national and EU policies to rebalance growth across 
the EU and within Member States will be key to ensuring a fair recovery that will help citizens, 
no matter where they live in the EU, to participate in and benefit from the single market. 

The 2030 EU headline targets on employment, skills and poverty reduction will play their 
part in boosting social upward convergence in the EU. Member States presented their national 
targets  for  2030  and  it  is  now  important  that  appropriate  policy  action  follows  the  declared 
ambitions. Progress towards the EU and national targets will be monitored as from this European 
Semester cycle, starting with the Commission proposal for the 2023 Joint Employment Report26. 

The  RRF,  together  with  cohesion  policy  funds  and  the  Just  Transition  Mechanism, 
supports fair and inclusive growth in the EU. The recovery and resilience plans implemented 
by Member States include a wide range of reforms and investments that will have lasting effects. 
They  will  contribute  to  higher  participation  in  the  labour  market,  productivity  gains  through 
education,  reskilling  and  upskilling  measures,  as  well  as  social  inclusion,  intergenerational 
fairness,  territorial  cohesion  and  resilience27.  Cohesion  policy  programmes  continue  to  enable 

24  The  Commission  proposal  for  a  Council  Recommendation  on  minimum  incomes  schemes  addresses  the  various  challenges 
identified in the design of national minimum income schemes, in line with the active inclusion approach. 
25 See the 2021 Ageing Report: Economic and Budgetary Projections for the EU Member States (2019-2070). 
26 COM(2022) 783. 
27  Fast  responses  to  emerging  challenges  is  are  clearly  demonstrated  by  the  additional  flexibilities  brought  by  the  Cohesion’s 
Actions  for  Refugees  in  Europe  (CARE  and  FAST-CARE)  packages  to  ongoing  cohesion  policy  programmes.  The  rapid 
resources  from  the  REACT-EU  instrument  will  also  contribute  to  greater  resilience  in  national  and  regional  economies.  This 

12 

 
 
                                                           
 
regions  to  grow,  in  particular  by  concentrating  on  regional  enablers  and  drivers  for  economic 
development as well as investing in human capital.  

2.4 Macroeconomic stability  

Deteriorating economic conditions have increased vulnerabilities and risks associated with 
pre-existing  imbalances,  and  new  imbalances  may  emerge,  The  Alert  Mechanism  Report 
provides the Commission’s analysis of the evolution of imbalances and emerging risks28. Despite 
the strong slowdown in activity underway, nominal GDP growth is forecast to help reduce debt 
ratios  in  both  2022  and  2023,  reducing  the  magnitude  of  some  stock  imbalances,  while  strong 
house  price  increases  should  moderate.  However,  the  weakening  of  economic  activity  and  the 
tightening in financing conditions increase the risks associated with high debt levels. In parallel, 
the  divergence  in  inflation  rates  and  increases  in  labour  costs  raise  the  possibility  of  cost 
competitiveness losses emerging, that may be costly to unwind, particularly if accompanied by 
structural transformations to production. As part of the in-depth review process, the Commission 
will  closely  monitor  developments  and  risks  related  to  common  trends,  within  a  common 
framework  to  provide  context  to  the  country-specific  analysis,  focusing  on  housing  market 
developments,  competitiveness  dynamics  and  external  sustainability  and  balances.  In-depth 
reviews (IDRs) will be prepared for the ten Member States previously identified as experiencing 
imbalances or excessive imbalances, to assess whether those imbalances are aggravating, under 
correction, or corrected, to update existing assessments and to assess possible remaining policy 
needs.  In  addition,  IDRs  will  be  undertaken  for  seven  Member  States  with  particular  risks  of 
newly emerging imbalances. The IDRs will be informed by in-depth thematic assessment notes, 
which will form the background for the analysis29. 

Ensuring macro-financial stability and maintaining the credit channels to the economy are 
key for resilience in challenging economic circumstances. The position of the banks is solid 
thanks  to  policy  actions  in  the  last  few  years.  Non-performing  loans,  albeit  declining,  should 
continue  to  be  addressed.  This  includes  monitoring  asset  quality,  timely  and  pro-active 
engagement with distressed debtors (in particular viable ones), further improving the efficiency 
of insolvency frameworks and the further development of secondary markets for non-performing 
loans,  notably  through  a  timely  transposition  of  the  Directive  on  credit  servicers  and  credit 
purchasers by the end of 202330. At the same time, banks need to maintain prudent provisioning 
policies  and  capital  buffers  that  are  consistent  with  the  prevailing  level  of  risk.  The  European 
Systemic  Risk  Board  issued  a  warning  on  22  September  2022,  where  it  called  for  heightened 
awareness  of  the  risks  to  financial  stability  stemming  from  a  sharp  fall  in  asset  prices.  Rising 
mortgage rates and the deterioration in debt servicing capacity due to a decline in real household 

instrument supports Member States and regions in strengthening their capacities to plan and implement reforms, often in support 
of the recovery and resilience plans. 
28 COM(2022) 781. 
29 The ten Member States previously identified are Cyprus, France, Germany, Greece, Italy, the Netherlands, Portugal, Romania, 
Spain, and Sweden. Additional IDRs will be for Czechia, Estonia, Hungary, Latvia, Lithuania, Luxembourg and Slovakia.  
30  Directive  2021/2167  of  the  European  Parliament  and  of  the  Council  of  24 November  2021  on  credit  servicers  and  credit 
purchasers, OJ L 438, 8.12.2021, p. 1–37. 

13 

 
 
                                                                                                                                                                                           
income  could  exert  downward  pressure  on  house  prices.  In  turn,  this  could  trigger  the 
materialisation of accumulated cyclical risks in real estate markets. In addition, the probability of 
large-scale cyber incidents affecting the financial system has increased. Euro area Member States 
need to continue to work on completing the banking union, in line with the way forward outlined 
by  the  Eurogroup31,  and  on  strengthening  the  international  role  of  the  euro.  Well-functioning 
financial sector and markets, in particular through a deeper  capital market union, are crucial to 
fund the very large investments needed for the green and digital transitions.  

The recent shocks emphasise the importance of strong coordination of sound fiscal policies 
and  of  building  fiscal  buffers  during  good  times  to  be  used  during  downturns.  The 
prevailing economic conditions have underscored the importance of sound budgetary processes 
that allow fiscal policies to be agile when faced with rapidly changing circumstances and to set 
priorities that ensure a high quality of public finances, with due attention to investment. During 
the  pandemic,  temporary  fiscal  support  was  needed  to  enable  companies  to  retain  their 
productive capacity and protect jobs and incomes at a time when large parts of the economy had 
to close down for short periods. The energy shock and high inflation currently affect economic 
activity and growth potential. While the nature of the crises as well as the policy responses differ, 
close  coordination  of  policy  responses  between  Member  States,  as  well  as  coherence  between 
fiscal and monetary policy, remain crucial.  

In  2022,  the  fiscal  stance  has  been  expansionary,  with  Member  States  taking  swift  but 
largely  untargeted  actions  to  cushion  the  economic  and  social  impact  of  the  exceptional 
increase in energy prices. These measures are currently expected to amount to 1.2% of GDP for 
the  EU  as  a  whole  in  2022.  While  the  measures  have  been  implemented  in  a  timely  manner, 
more  than  70%  of  them,  such  as  lower  VAT  rates  or  excise  duties,  or  changes  to  levies  and 
subsidies on energy products, were not focused on vulnerable households and exposed firms and 
two  thirds  of  them  did  not  provide  incentives  to  reduce  energy  demand.  It  is  increasingly 
important for measures to focus on vulnerable households and exposed businesses and to remain 
temporary.  The  expansionary  fiscal  stance  has  also  been  supported  by  additional  financing  of 
investment, both nationally and via RRF and other EU funds. Further investment is required to 
accelerate  the  twin  transitions,  increase  energy  efficiency  and  to  speed  up  the  rollout  of 
renewable energy sources.  

As  a  broad-based  fiscal  impulse  to  the  economy  would  not  be  appropriate  in  2023,  a 
careful,  coordinated  approach  is  necessary  for  designing  measures  in  response  to  energy 
price developments. An overall neutral fiscal stance in 2023 for the EU and the euro area as a 
whole,  taking  into  account  the  impact  of  targeted  energy  measures,  appears  appropriate  in  the 
current economic context. It would complement the efforts of monetary policy to reduce inflation 
and  keep  inflation  expectations  well  anchored.  The  energy  support  measures  are  currently 
estimated at almost 1% of GDP in 2023 for the EU as a whole, covering mostly the first half of 
the  year  in  many  Member  States.  Finalising  the  budgets  for  2023  provides  an  opportunity  to 
improve the design of the support measures and the quality and composition of public finances, 

31 See Eurogroup statement on the future of the Banking Union of 16 June 2022.  

14 

 
 
                                                           
with  a  view  to  targeting  fiscal  measures  to  address  the  impact  of  high  energy  prices  on 
vulnerable  households  and  companies.  A  two-tier  model  for  energy  pricing,  where  consumers 
benefit  from  regulated  prices  up  to  a  certain  level  of  consumption,  can  be  instrumental  there. 
Moreover, fiscal policies should remain prudent in particular in high-debt Member States, while 
protecting public investment. These considerations are reflected in the policy guidance for 2023 
included  in  the  Commission  recommendation  for  a  Council  recommendation  on  the  economic 
policy of the euro area32.  

In  the  medium  term,  fiscal  policies  should  ensure  fiscal  sustainability  and  prioritise 
investment to support the twin transition and social and economic resilience. Fiscal policies 
should aim at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability 
through  gradual  consolidation  and  investment  and  reforms  enhancing  sustainable  growth. 
Accelerating  reforms  that  make  taxation  systems  and  revenue  collection  more  growth-friendly 
and  improve  the  long-term  efficiency  of  public  spending  would  strengthen  potential  growth, 
competitiveness  and  debt  sustainability,  in  turn  also  supporting  the  crisis  response  capacity  of 
fiscal policy. At the same time, there is a greater need to push forward structural transformation 
and investments, including to mitigate and adapt to climate change and the intensity of climate-
related  disasters,  with  clear  impacts  on  national  budgets.  Member  States  are  encouraged  to 
develop  tools  to  assess  the  climate  implications  of  budgetary  planning  and  long-term 
sustainability, alongside with policies and tools that help prevent, reduce and prepare for climate-
related  impacts  in  a  fair  way.  Finally,  demographic  challenges  call  for  further  policy  action, 
including through reforms that ensure the adequacy and sustainability of pension systems. 

The general escape clause in the Stability and Growth Pact will continue to apply in 2023, 
and be deactivated as of 2024. The Commission’s assessment of the euro area Member States’ 
draft  budgetary  plans33  indicates  that  the  growth  of  nationally  financed  current  expenditure  in 
some  Member  States  is  projected  to  be  high,  leading  to  an  expansionary  fiscal  stance  in  some 
Member States. Limiting the growth of current  expenditure, taking into account temporary and 
targeted support to households and firms vulnerable to energy price hikes and to people fleeing 
Ukraine,  is  important  not  to  add  to  inflationary  pressures  and  is  particularly  relevant  for  high-
debt  countries.  This  should  be  combined  with  higher  investments  in  serving  green,  digital  and 
energy security objectives for a more resilient economy. Member States are invited to take action 
individually,  including  through  the  implementation  of  their  recovery  and  resilience  plans,  and 
collectively, to use and coordinate national fiscal policies in the most growth-friendly manner.  

The Commission does not propose to open new excessive deficit procedures. As announced 
in  May  2022,  it  has  reassessed  the  relevance  of  proposing  to  open  new  excessive  deficit 
procedures34.  This  assessment  took  into  account  updated  outturn  data  for  2021,  the 
implementation of fiscal policy by the Member States in the course of 2022 and the government 

32 COM(2022) 782. 
33 COM(2022) 900. 
34 Romania has been subject to an Excessive Deficit Procedure since spring 2020. The procedure has been held in abeyance since 
autumn 2021. The Commission will re-examine compliance with the requirements set out in the Council recommendation  next 
spring.  

15 

 
 
                                                           
budgetary  plans  for  2023,  as  reflected  in  the  Commission’s  2022  Autumn  Economic  Forecast. 
The  updated  information  largely  confirms  previous  findings35.  Taking  into  account  the  current 
exceptional uncertainty, including for designing a detailed path for fiscal policy, the Commission 
considers that a decision to place additional Member States under the excessive deficit procedure 
should not be taken at this stage. In spring 2023, the Commission will again assess the relevance 
of opening excessive deficit procedures based on the outturn data for 2022 and plans for 2023, 
taking  into  account  in  particular  compliance  with  the  fiscal  recommendations  addressed  to  the 
Member States by the Council. 

3.  Features of the 2023 European Semester 

The 2023 European Semester and the implementation of recovery and resilience plans will 
continue  to  frame  EU  policy  coordination.  The  combination  of  the  challenges  mentioned 
above  underlines  the  need  to  continue  closely  coordinating  economic  and  social  policies.  The 
aim is to overcome the immediate economic challenges, and continue to support fair, inclusive, 
resilient and sustainable growth, while seizing the opportunities from  the twin transition. As in 
2022, the streamlined country reports will provide a holistic overview of the economic and social 
developments  and  challenges  that  Member  States  face,  taking  the  regional  dynamics  into 
account,  as  well  as  of  their  resilience36.  They  will  include  an  assessment  of  progress  on  the 
implementation  of  the  European  Pillar  of  Social  Rights  via  the  Social  Scoreboard,  and  on 
achieving  the  2030  EU  headline  and  national  targets  on  employment,  skills  and  poverty 
reduction. Country reports identify challenges that are only partially addressed or not addressed 
by  the  recovery  and  resilience  plans,  taking  a  close  look  at  the  progress  on  implementing  the 
plan, and any emerging challenges. Country-specific recommendations (CSRs) continue to focus 
on  a  limited  set  of  key  challenges  identified  in  the  country  reports,  and  where  relevant  the  in-
depth  reviews,  for  which  policy  action  will  be  required.  The  country  reports,  the  in-depth 
reviews  and the proposals  for CSRs will  be presented together in  the 2023 European Semester 
Spring package.  

On  9  November  2022,  the  Commission  provided  orientations  on  possible  changes  to  the 
EU’s  economic  governance  framework37.  It  is  seeking  to  improve  the  effectiveness  of 
economic  surveillance  and  policy  coordination  in  the  EU  by  defining  a  simpler  and  integrated 
architecture  for  macro-fiscal  surveillance  to  ensure  debt  sustainability  and  promote  sustainable 
and inclusive growth. The reformed framework should help build the green, digital and resilient 
economy of the future, while ensuring the sustainability of our public finances. It should pursue 
an integrated approach whereby surveillance tools complement each other, in the context of the 
European Semester. Swift agreement on revising the EU fiscal  rules  and  other elements  of the 
economic  governance  framework  is  a  pressing  priority.  A  consensus  on  the  reform  of  the 

35  See  the  Commission  report  under  Article  126(3)  Treaty  on  the  Functioning  of  the  European  Union  of  23  May  2022, 
COM(2022) 630 final. 
36 The resilience analysis also takes into account the input from the Commission’s Resilience Dashboards:  
https://ec.europa.eu/info/strategy/strategic-planning/strategic-foresight/2020-strategic-foresight-report/resilience-dashboards_en. 
37 COM(2022) 583 final.  

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economic  governance  framework  should  be  reached  ahead  of  the  Member  States’  annual 
budgetary processes for 2024. 

The  Sustainable  Development  Goals  (SDGs)  will  continue  to  be  integrated  into  the 
European Semester. The 2023 country reports will assess the progress and challenges for each 
Member  State  on  SDG  implementation.  The  reports  will  include  a  detailed  annex  for  each 
country which, based also on Eurostat monitoring, will link SDG implementation with the four 
dimensions  of competitive sustainability.  In parallel,  the Commission  will  put  forward the first 
EU-level  voluntary  review38  of  SDG  implementation  at  the  2023  United  Nations  High-level 
Political Forum on Sustainable Development. Parallel to the integration of the SDG monitoring 
as  part  of  the  European  Semester,  the  EU  voluntary  review  will  serve  to  reaffirm  the  EU’s 
commitment  to  the  2030  Agenda  for  Sustainable  Development  in  a  whole-of-government 
approach,  linking  the  internal  and  external  dimensions.  It  will  increase  the  visibility  and 
consistency  of  the  work  undertaken  by  the  EU  on  SDG  implementation,  and  support  the 
importance  of  these  shared  goals  at  a  global  level,  at  a  time  when  multilateralism  is  under 
pressure and there is increasing focus on promoting sustainable and inclusive wellbeing. 

The Commission is committed to an inclusive process and the timely involvement of social 
partners  and  other  relevant  stakeholders  during  the  European  Semester  cycle.  A 
sustainable  recovery  and  the  twin  transition  can  only  succeed  if  we  act  together,  in  close 
cooperation  with  all  relevant  stakeholders.  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  social  partners,  local  and  regional  authorities  and  other  stakeholders,  in  particular 
representatives of civil  society  organisations, through  regular exchanges. They should  draw on 
the  successful  application  of  the  partnership  principle  in  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. The Commission will make use of 
the existing forums under the European Semester to inform and involve social partners also on 
RRF  implementation.  In  2023,  the  Commission  will  present  a  communication  to  strengthen 
social  dialogue  in  the  EU,  as  well  as  a  proposal  for  a  Council  recommendation  on  the  role  of 
social dialogue at national level.  

The  Commission  fully  recognises  the  democratic  accountability  of  the  EU's  economic 
governance  and  will  continue  the  strengthened  inter-institutional  dialogue  with  both  the 
European Parliament and the Council. It is committed to continue the close dialogue with the 
European Parliament on  key social,  economic and  labour market  developments,  also  as part of 
the European Semester and will engage with the European Parliament  on each key stage of the 
European Semester cycle.  

38 Voluntary reviews aim to make it easier to share experiences, including successes, challenges and lessons learnt, with a view to 
accelerating the implementation of the 2030 Agenda for Sustainable Development. The reviews also seek to strengthen policies 
and government institutions and to mobilise multi-stakeholder support and partnerships for the implementation of the SDGs.  

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4.  Conclusion  

While  the  swift  and  coordinated  policy  action  during  the  COVID-19  pandemic  is  paying 
off, the fallout of Russia’s invasion of Ukraine confronts the EU economy and society with 
multiple new economic, social and geopolitical challenges that require policy action at EU 
and  national  level.  Historically  high  energy  prices,  high  inflation  rates,  supply  shortages, 
increased debt levels and rising borrowing costs are affecting the economic activity of businesses 
and  the  cost  of  living  of  EU  households,  in  particular  vulnerable  ones.  Economic,  social  and 
fiscal  policies face  complex policy  choices to  cushion the economic fallout  of this challenging 
environment and limit supply-driven inflation, while staying on course with our medium-to long 
term objectives to increase social and economic resilience and support the twin transition.  

Our growth strategy, based on the four dimensions of competitive sustainability, provides 
the compass for our coordinated economic and social policy action, both in the short term 
and medium term. EU and national policy responses need to be well calibrated and coordinated 
to strengthen economic, social and territorial cohesion, improve energy security and affordability 
while  accelerating  the  clean  energy  transition,  foster  competitive  sustainability,  increase 
productivity, and preserve macroeconomic stability and the single market.  

To  protect  the  achievements  of  EU  integration  and  to  make  the  EU’s  economies  more 
future-proof,  the  European  Semester  will  help  identify  the  relevant  policy  challenges, 
specify  policy  priorities,  provide  policy  guidance  and  ensure  policy  surveillance  and 
monitoring.  The  European  Semester  will  be  at  the  core  of  the  transformative  process  in  the 
coming years. Together with the RRF, it will continue to ensure an effective reform momentum 
in  each  Member  State  until  2026  in  combination  with  the  reform  and  investment  strategies 
enabled by other EU programmes such as the cohesion policy funds, InvestEU and the national 
energy and climate plans that aim to keep our economy on track to reaching our climate goals 
and  the  National  Digital  Decade  Roadmaps  that  aim  to  contribute  to  a  successful  digital 
the 
transformation  by  2030.  The  European  Semester  will  also  continue 
implementation  of  recovery  and  resilience  plans  and  provide  the  analytical  underpinning  for 
identifying new economic, employment and social policy challenges not already addressed in the 
plans, putting forward relevant CSRs. Both processes will therefore remain interlinked, reaping 
the synergies to avoid overlaps and duplication, including in relation to reporting requirements.  

to  monitor 

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