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 2024
Date: 2023-11-21
Institutions: European Commission, Secretariat-General
Subjects: EU growth strategy, European Semester, competitiveness, digital single market, digital transformation, economic recovery, economic stabilisation, green economy, macroeconomics, sustainable development

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  EN 

   EUROPEAN COMMISSION  Strasbourg, 21.11.2023  COM(2023) 901 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 2024  
 
 
Investing in the EU’s competitive future:  

Annual Sustainable Growth Survey 2024 

1.  Introduction 

After a strong recovery in 2022, economic activity in the EU has slowed down in the face of high 
inflation  and  tighter  financing  conditions.  A  swift,  decisive  and  coordinated  policy  response 
allowed  the  economy  to  rebound  and  tackle  the  socio-economic  consequences  of  the  COVID-19 
pandemic  and  Russia’s  war  of  aggression  against  Ukraine.  The  EU  has  managed  to  navigate  the 
resulting  energy  crisis,  reducing  its  dependence  on  Russian  fossil  fuels  without  the  need  for  gas 
rationing and avoiding a recession. Although the economy has slowed down in 2023 and risks and 
uncertainties are high, including as a result of the situation in the Middle East, there have never been 
more people at work in the EU, and unemployment has hit a historic low, though with variation across 
Member States and regions. While structural challenges remain, the recent achievements show that 
Europe works best when it works together.  

As underlined in the Granada declaration, the EU is committed to strengthening its long-term 
competitiveness and building a resilient economic base by addressing its structural challenges. 
Disruptive geopolitical events have demonstrated the need for the EU to further strengthen its open 
strategic  autonomy  and  remain  competitive  in  a  global  market,  while  ensuring  that  no  one  is  left 
behind.  The  EU  will  continue  to  pursue  its  open  and  fair  trade  policy,  invest  in  partnerships  and 
defend itself against unfair practices, for example from China. The EU needs resilient, diversified 
supply  chains  to  reinforce  economic  security,  particularly  in  critical  raw  materials,  technological 
components, and equipment. To further enhance the EU’s competitive edge, it is crucial to ensure the 
development of the necessary competences and skills for the green and digital transition, manage the 
demographic  change,  while  increasing  investments  and  fostering  innovation.  The  Commission’s 
demography toolbox supports Member States in mobilising policies addressing the challenges in an 
ageing  society.  Making  the  most  of  the  single  market,  especially  for  small  and  medium-sized 
enterprises (SMEs) and further developing the Capital Markets Union to support private investments, 
are equally crucial.  
The EU is moving away from fossil fuels. Based on the commitments under the European Green 
Deal,  Europe  is  pushing  to  decarbonise  industries,  energy,  buildings  and  transport  and  has 
significantly  accelerated  the  clean  energy  transition.  Creating  a  strong  clean  tech  industry  and 
enabling its  deployment, including  by implementing  the Commission’s proposal  on a Green Deal 
Industrial Plan (GDIP)1, will support competitiveness. Faster permitting procedures as introduced in 
the  revised  Renewable  Energy  Directive  and  an  emergency  regulation  on  permitting  will  make 
renewable energy more abundant. Further, the Commission has tabled a proposal to improve the EU’s 
electricity market design and its protection against market manipulation, as well as boost new energy 
investment.  
EU funding instruments are boosting the green and digital transition, skills and employment to 
strengthen the EU’s competitiveness at national and regional level. The ongoing implementation 
of the Recovery and Resilience Facility (RRF), including the introduction of dedicated REPowerEU 

1 COM (2023) 62 final. 

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chapters  in  Member  States’  national  recovery  and  resilience  plans  (RRPs),  the  Technical  Support 
Instrument (TSI), and the use of cohesion policy funds, continue to play a pivotal role in shaping 
reform  and  investment  agendas  in  all  Member  States.  The  proposed  Strategic  Technologies  for 
Europe Platform (STEP) will ensure further synergies among existing EU instruments, including the 
InvestEU programme, for a quick deployment of critical technologies. So far, the RRF has made over 
EUR 175 billion in payments, over EUR 210 billion has been disbursed under the cohesion policy 
funds since the beginning of the COVID-19 pandemic, and EUR 13.44 billion in EU guarantees and 
119 operations have been approved under InvestEU. Horizon Europe has mobilised over EUR 24 
billion in science and innovation. In parallel, the Commission has positively assessed investment and 
reform agendas under REPowerEU amounting to EUR 54 billion. To continue securing funding and 
optimising resources for the EU’s political priorities, the targeted revision of the EU’s multiannual 
financial framework needs to be swiftly adopted. 
The 2024 cycle of the European Semester will take stock of the ongoing implementation of RRPs 
and the cohesion policy programmes, exploring how they complement each other in terms of 
funding and policy outcomes. The focus will be in particular on the complementarities between the 
RRF and cohesion policy funds, showing how reforms are acting as key enablers for investments at 
different  levels.  It  will  also  provide  orientations  in  view  of  the  forthcoming  mid-term  review  of 
cohesion  policy  programmes.  This  will  be  an  opportunity  to  assess  the  programmes  and  address 
emerging needs and challenges in EU Member States and their regions. 

The Economic Governance Review should be concluded swiftly.  The European Parliament and 
the Council are working on the Commission’s proposals to reform the EU fiscal rules, presented on 
26 April 2023. The reformed framework will create clarity and predictability for future fiscal policy, 
promoting  debt  sustainability  and  economic  growth  at  the  same  time.  Once  the  reformed  fiscal 
framework  has  been  adopted,  Member  States  will  start  preparing  their  first  medium-term  fiscal-
structural  plans,  outlining  fiscal,  structural  and  investment  policies  for  the  next  4  to  5  years.  The 
Commission calls on the co-legislators to rapidly agree on a reformed framework. 

This  year’s  Annual  Sustainable  Growth  Survey  highlights  the  EU’s  socio-economic  policy 
agenda,  taking  into  consideration  the  evolving  macroeconomic,  social  and  geopolitical 
landscape. The guidance follows a structured approach based on the four dimensions of competitive 
sustainability, aligned with the EU’s work to make continuous progress towards the UN Sustainable 
Development  Goals.  The  Communication  also  outlines  the  key  aspects  of  the  2024  European 
Semester cycle. 

2.  The four dimensions of competitive sustainability 

2.1 Macroeconomic stability 

The  EU  economy  remains  resilient  despite  a  slowdown.  In  2022,  economic  activity  was  still 
recovering, and GDP increased by 3.4% in the face of soaring inflation. Over the course of 2023, 
inflation,  which  is  still  high  but  gradually  declining,  and  the  tightening  of  monetary  policy  have 
resulted in  weaker growth. On the other hand, developments  on the labour market  continue to  be 
encouraging, with unemployment remaining close to historical lows. The autumn forecast expects the 
EU economy to grow by a modest 0.6% in 2023, then rebound by 1.3% in 2024 and by 1.7% in 2025. 
Inflation is set to continue declining, reaching 2.4% in 2025 in the EU. This, together with higher 

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wages and a still strong labour market, will contribute to a gradual recovery of households’ purchasing 
power.  

Risks  related  to  high  debt  and  price  divergences  remain  relevant.  While  the  inflationary 
environment facilitated faster deleveraging from high debts, the tighter financing conditions could 
result in increased tensions linked to high debt, both in the private and public sector. This would affect 
in particular Member States where debt servicing requires large rollovers of debt, or where the private 
sector faces steep increases in interest payments. In addition, continued differences in price and cost 
increases  across  countries  raise  the  prospect  of  competitiveness  losses  in Member  States  with  the 
strongest price increases. This is a particular risk among euro area countries as the re-alignment of 
domestic  costs  and  prices  via  changes  in  the  nominal  exchange  rate  is  not  an  option2.  The  Alert 
Mechanism Report contains the Commission’s analysis of the evolution of imbalances and emerging 
risks3. Next  spring, in-depth  reviews will be prepared for  12 Member States. For Cyprus, France, 
Germany, Greece, Spain, Hungary, Italy, the Netherlands, Portugal, Romania and Sweden to the in-
depth reviews will follow up on imbalances or excessive imbalances identified this spring, while for 
Slovakia the in-depth review will assess the risk of newly emerging imbalances.  

With the general escape clause under the Stability and Growth Pact expiring at the end of 2023, 
fiscal  policy  needs  to  support  monetary  policy  in  reducing  inflation  and  safeguard  fiscal 
sustainability, while providing sufficient space for additional investments and supporting long-
term growth4. Fiscal policy coordination is key to helping monetary policy bring inflation back to 
its medium-term target in a timely manner. Governments should adopt coordinated and prudent fiscal 
policies to keep debt at prudent levels or put debt ratios on a plausibly downward path. They should 
wind down crisis-related energy support measures as soon as possible and use the resulting savings 
to reduce deficits. While remaining agile in view of the high uncertainty, achieving a contractionary 
fiscal stance, as expected in 2023 and 2024, will contribute to restoring fiscal buffers over time and 
thus  to  improving  the  sustainability  of  public  debt  in  some  Member  States.  Besides  the  need  to 
maintain  a  prudent  fiscal  strategy,  public  investment  needs  to  be  maintained  and,  where  needed 
increased, to  support long-term  growth  and the green transition.  To that end, governments  should 
sustain  a  high  level  of  public  investment  to  support  the  green  and  digital  transition,  strengthen 
productivity and resilience. This will require improvements in the quality and composition of public 
finances on both the revenue and expenditure side, for instance by optimising the tax mix. It will also 
be  crucial  to  accelerate  the  implementation  of  the  Recovery  and  Resilience  Plans,  including  their 
REPowerEU chapters, and make full use of cohesion policy programmes. 

Fiscal emergency measures taken to respond to the energy price shock should be wound down 
as soon as possible. Protracted non-targeted fiscal support to households and firms is not the right 
tool in the current situation, as it increases inflationary pressures and contributes to prolonged tight 
monetary policy. It also limits fiscal space for productive spending, for example on green and digital 
investments.  Support  to  vulnerable  households  should  be  provided  in  a  targeted  manner  through 
established social protection systems and social safety nets. Should support measures be necessary, 

2 COM (2023) 903 and SWD (2023) 903 
3 COM (2023) 902 and SWD (2023) 902 
4 COM (2023) 900. 

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these should be focused on protecting vulnerable households and firms, be fiscally affordable and 
preserve incentives to increase energy efficiency.  
As  announced  in  the  fiscal  policy  guidance  for  20245,  the  Commission  will  propose  to  the 
Council to open deficit-based Excessive Deficit Procedures in spring 2024 on the basis of the 
outturn data for 2023, in line with existing legal provisions. 

2.2 Environmental sustainability 

Actions taken by the EU and its Member States helped bring energy prices closer to pre-crisis 
levels, while investments in clean energy sources help stabilise the future supply. Natural gas 
prices have fallen by about 84% compared to the record-high levels last year but are still 78% above 
pre-crisis levels and wholesale electricity prices also fell (by -78% compared with the same period 
last year). Nevertheless, energy prices in the EU remain high on average compared to pre-crisis levels 
and the rest of the world. While the EU has increased its energy system’s resilience, market conditions 
are still subject to uncertainty, including due to the Middle East crisis. Since February 2022, the EU 
has ended all imports of Russian coal, reduced imports of Russian oil by about 90% and total Russian 
gas imports by about two-thirds and will continue these efforts in the future. Natural gas storage levels 
are at record highs ahead of time, at 100% in November 2023. The successful implementation of the 
EU framework on demand reduction by Member States has strengthened the EU’s preparedness for 
this winter, and the demand aggregation tool AggregateEU is delivering concrete results. Given the 
improved  conditions  in  the  energy  markets  as  well  as  the  need  to  adopt  prudent  fiscal  policies, 
Member States should quickly phase out fossil-fuel subsidies.  They should only resort to targeted 
energy support measures if there are further energy price increases and facilitate a rapid deployment 
and  phase-in  of  affordable  clean  energy  alternatives  for  households  and  businesses  through 
appropriate reforms and investments.  

Member  States  are  focusing  their  efforts  on  implementing  the  REPowerEU  chapters  of  the 
RRPs, complemented by cohesion policy  funds. So far, 23 Member States have submitted their 
REPowerEU chapters, amounting to an envelope of EUR 54 billion. REPowerEU measures include 
streamlining  permitting  procedures  to  accelerate  the  roll-out  of  renewables  and  storage  facilities, 
scaling up energy efficiency measures to reduce energy poverty and supporting the development of 
value  chains  in  critical  raw  materials  and  technologies  necessary  for  the  green  transition.  The 
cohesion  policy  funds’  support  for  investments  in  energy  efficiency,  renewable  energy  and  smart 
energy  systems  under  the  Greener  Europe  policy  objective  also  plays  an  important  role  in 
implementing several key actions under the REPowerEU initiative. The EU financing to these actions 
from  all  policy  objectives  and  the  Just  Transition  Fund  (JTF)amounts  to  EUR  47  billion.  The 
availability of these different funding instruments means that common objectives can be met more 
effectively, for example through the combination of RRF/REPowerEU reforms on permitting and the 
connection of more renewables to the grid through investments at national and regional level.  

The updated national energy and climate plans (NECPs) need to be fully developed and swiftly 
implemented.  Member  States’  updated  NECPs  should  put  forward  more  ambitious  climate  and 
energy policies in line with the EU’s 2030 climate and energy targets. They are expected to take full 
account  of  the  latest  country-specific  recommendations  (CSRs),  published  in  the  context  of  the 

5 COM(2023) 141 final.  

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European Semester, reflect energy and climate measures in their RRPs, and explore synergies with 
other planning instruments  under EU cohesion  policy. The Commission will issue Member State-
specific recommendations for their draft NECPs in December 2023 and expects these to be fully taken 
into account in the final NECPs, due by June 2024. NECPs will help consolidate strategic planning, 
mobilise public and private investment6 as well as strengthen investor certainty to deliver on the 2030 
climate and energy targets of reducing EU greenhouse gas emissions by at least 55% below 1990 
levels.  This  should  be  combined  with  efforts  to  reverse  the  loss  of  natural  resources,  develop 
sustainable agricultural practices, preserve ecosystem services and adapt better and faster to a more 
adverse  climate,  in  particular  in  the  area  of  water  resilience.  To  preserve  budgetary  stability  and 
prevent financial shocks in the future, there is an increasing need for Member States to consider and 
prepare for the fiscal impact of excessive weather events and other climate hazards in their medium-
term budgetary planning. 

Strengthening  the  EU  net  zero  industry  is  essential  for  providing  the  technologies  and 
components needed to deliver on the European Green Deal and for Europe’s industry to remain 
competitive. The future competitiveness of the EU net zero industry will be determined by a stable 
supply of affordable and increasingly clean energy, the availability of a highly skilled workforce and 
adequate private and public funding. The availability of affordable raw  materials,  continued trade 
openness, and a supportive business environment are also key. Building on the strengths of the single 
market, the GDIP and the Net Zero Industry Act aim to provide a more supportive environment for 
scaling up the EU’s manufacturing capacity for net zero technologies. The STEP proposal will boost 
the  EU’s  investment  capacity  to  support  this  scale-up,  accompanied  by  appropriate  skills 
development, while helping to safeguard cohesion and the Single Market. The total investment needs 
in  EU  supply  chains  for  five  net  zero  technologies  (wind,  solar,  batteries,  heat  pumps  and 
electrolysers) amount to EUR 92 billion until 2030. In this regard, the European Wind Power package 
will  support  companies  in  the  wind  sector  and  improve  their  competitiveness.  More  generally, 
engagement with industrial stakeholders, including clean transition dialogues, will help EU industry 
to  build  its  business  model  for  the  green  transformation.  R&I  will  play  a  crucial  role  in  this 
transformation and will require an innovation-friendly policy framework. To deliver on the European 
Green Deal,  EU industry also  needs to  bolster its circular economy  transition,  in  particular in  the 
recovery  and  substitution  of  critical  raw  materials  and  the  uptake  of  secondary  raw  materials  to 
maximise value retention. Furthermore, Member States should focus on removing environmentally 
harmful subsidies, where potential budgetary gains are estimated at up to EUR 300 billion per year7. 
Furthermore,  the  EU  industry’s  climate  transition  will  be  aided  by  the  carbon  border  adjustment 
mechanism, which will help maintain a level playing field with non-EU producers and avoid carbon 
leakage. 

2.3 Productivity 

While productivity is the main driver of competitiveness, average productivity growth in the 
EU has stagnated over the last decade. Labour productivity per hour worked has increased by only 
6% since 2015. The new Single Market and Competitiveness Report that will be published by the 

6 Overall, additional investments of over EUR 620 billion annually will be needed to meet the objectives of the Green Deal and  REPowerEU as 
well investments of EUR 92 billion until 2030 to meet the objectives of the net-zero industry act.  
7 European Commission, 2022, A toolbox for reforming environmentally harmful subsidies in Europe. 

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Commission in January 2024 will serve as the basis for an annual governance cycle and for discussion 
on the single market and long-term competitiveness and productivity, as requested by the European 
Council. An uneven and slow digital transformation in general and skills shortages in various sectors 
represent major barriers to productivity growth. There is a need for decisive policy action to support 
private R&I funding through rightly designed tax incentives, public-private partnerships and better 
conditions for start-up and scale up companies such as through the European Innovation Council, 
established under the Horizon Europe Programme. Increased research and innovation in businesses 
and  in  the  public  sector  is  particularly  important  to  strengthen  productivity  in  regions  that  have 
experienced  slow  growth  in  recent  years.  While  more  young  people  in  the  EU  finish  tertiary 
education, increasing the number of STEM graduates, addressing gender disparities and improving 
labour market relevance can further strengthen productivity.  

Boosting  productivity  hinges  on  improving  the  framework  conditions,  deepening  the  single 
market and on respect for the rule of law. EU businesses are burdened today by administrative 
obstacles  that  hinder  their  ability  to  invest  across  borders  and  effectively  complete  the  green  and 
digital transition.  Joint efforts are  required to  enforce  existing  rules, remove barriers,  and  explore 
areas for further integration8. The Commission has put forward the first legislative proposals to reduce 
reporting obligations at European level by 25%, without undermining the policy objectives of the 
initiatives concerned. Member States, including regional and local authorities, must also step up their 
efforts in this area to match this level of ambition. Raising productivity requires strong incentives 
through the tax and benefit system and effective education and training to increase the labour supply 
and the availability of a flexible and skilled workforce. Deep and integrated EU capital markets are 
key  for  EU  global  competitiveness,  as  means  to  source  private  investment  in  the  EU  economy, 
including for the green and digital transition. Further efforts are also needed to facilitate innovation 
uptake and reduce bottlenecks and barriers in product and services markets. Respect for the rule of 
law, in particular independent, quality and efficient justice systems, legal certainty and equality before 
the law are also key determinants of a business environment that fosters investment and innovation. 

Fostering a fair and SME-friendly  business environment are key to strengthening the single 
market.  The  SME  Relief  Package  includes  a  proposal  to  combat  late  payments.  It  aims  to  bring 
fairness  to  commercial  transactions,  improve  the  liquidity  and  resilience  of  SMEs  and  boost  the 
competitiveness of EU businesses. The package also includes proposals to appoint a dedicated SME 
envoy and a proposal to introduce Head Office Taxation (HOT) to simplify the taxation framework 
for  SMEs  that  operate  across  borders.  The  Business  in  Europe:  Framework  for  Income  Taxation 
proposal will make life easier for both businesses and tax authorities by introducing a single set of 
rules to determine the tax base of groups of companies that operate in more than one country. The 
SME window of the InvestEU programme also helps SMEs adapt to sustainable business practices 
and  funds  start-ups  developing  new  sustainability  technologies.  Support  for  SMEs  is  expected  to 
reach more than EUR 200 billion until 2027 under EU funding programmes9.  

The EU’s growth path relies heavily on the uptake of digitalisation. While digital technologies 
offer competitive advantages, improved services and expanded markets for large firms, SMEs’ level 
of digitalisation remains uneven across Member States and sectors. Many traditional SMEs lack the 

8 Communication, The Single Market at 30, COM (2023) 162 final. 
9 SME Relief Package, page 12, footnote 61: SME Relief Package (europa.eu). 

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resources and skills to fully benefit from digitalisation, emphasising the need for progress in this area. 
The  large-scale  digital  skills  partnership  aims  to  help  reach  the  EU  Digital  Decade  targets  of 
equipping  80%  of  people  with  basic  digital  skills,  achieving  gender  convergence,  and  having  20 
million ICT specialists employed by 2030. The national Digital Decade strategic roadmaps will set 
out the concrete measures that each Member State intends to take to address gaps, in line with the 
findings of the first State of the Digital Decade report. Several regulatory developments, including 
the framework for AI, the Data Act, the Digital Services and the Digital Markets Act, will strengthen 
Europe’s potential to compete at a global level. The EU’s proposal for a legal framework on AI, , is 
the first comprehensive framework of its kind; while it aims to mitigate the risks in a proportionate 
manner, it provides the legal certainty that is needed to roll out trustworthy AI on a European scale. 

Reducing productivity gaps in the EU requires a focus also on those regions where productivity 
has  stagnated  and  that  can  benefit  from  complementarities  between  the  RRF  and  cohesion 
policy funds at regional level. Disparities in access to education and training, healthcare, research, 
innovation,  mobility  and  high-quality  digital  infrastructure  are  further  accentuated  in  rural  and 
outermost areas. This is also demonstrated in urban areas that have higher competitiveness and higher 
levels of human capital10. For instance, less than 25% of the population aged 25-64 in EU rural regions 
has  received  post-secondary  education,  against  44%  in  cities11.  Synergies  between  the  RRF  and 
cohesion policy funding are essential for delivering support at regional level.  

2.4 Fairness 

The EU labour market continues to perform strongly overall despite slower economic growth, 
even  though  regional  disparities  persist,  with  some  population  groups  benefiting  less.  The 
employment rate reached a record level of 75.4% in Q2-2023, while the unemployment rate fell to 
6.0%,  which  is  the  lowest  rate  ever  recorded  for  the  EU.  While  some  Member  States  have  made 
significant progress, others recorded unemployment rates still above 11%12. At the same time, labour 
market outcomes show marked regional disparities within Member States.  

The high levels of labour and skills shortages are a major bottleneck for sustainable growth, 
innovation and competitiveness and require targeted action. In this tight labour market, over two-
thirds of employers cannot find the talent they need13. Shortages are common in healthcare, STEM 
(particularly  ICT),  green and certain  service occupations.  The talents  of  women, young and older 
people,  the  low-skilled,  persons  with  disabilities  and  other  disadvantaged  and  underrepresented 
groups are much needed on the labour market14. Over 20% of the working-age population is inactive, 
including  8  million  young  people  who  are  not  in  employment,  education  or  training.  Equal 
opportunities should be ensured for all, including through implementation of the Union of Equality 
strategies15.  

10 EU Regional Competitiveness Index 2.0 – 2022 edition; https://ec.europa.eu/regional_policy/sources/work/rci_2022/eu-rci2_0-2022_en.pdf 
11 Eurostat, EDAT_LFS_9913. 
12 ES and EL recorded unemployment rates of >11% in Q2-2023, and ES, EL, IT, RO and SE recorded youth unemployment rates of >20 % (with 
SK, HR, and PT just under the threshold). Source: Eurostat. 
13 European Commission (2023), Employment and Social Developments in Europe. 
14 For instance, the female employment rate was 70.3% in Q2-2023, 5.1 percentage points below the workforce average. Unpaid care responsibilities 
keep more than 7 million women in the EU from the labour market. 
15 The Union of Equality strategies promote equality and inclusion of women and disadvantaged groups, such as persons with disabilities and people 
with a migrant, minority racial or ethnic background, including Roma. 

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Policy  actions  at  the  appropriate  levels  should  be  geared  towards  increasing  labour  market 
participation to improve employment and social outcomes. This includes reinforced active labour 
market policies, access to quality and affordable early childhood education and care, as well as long-
term care, tax and benefit systems that support working (including by shifting taxation from labour 
to environmental and climate objectives), adequate working conditions and possibilities for managed 
legal migration16, while ensuring labour and social protection rights. The increased use of algorithmic 
management and AI in the workplace can help address shortages but requires vigilance. Strengthening 
quality and inclusive education and training remains a key priority, as well as stronger upskilling and 
reskilling  efforts  for  the  twin  transition.  A  lack  of  basic  skills  as  well  as  advanced  STEM  skills, 
learning gaps  and  teacher shortages  pose increasing challenges to  education and training systems, 
including for young people to enter the labour market. The momentum of initiatives launched under 
the European Year of Skills17 should be continued. 

Despite marked wage increases in the EU in 2022 and the beginning of 2023, these remained 
below  the  high  inflation  rates  and  resulted  in  reduced  purchasing  power,  affecting  lower 
incomes the most. Real wages in the EU decreased by 3.7% in 2022, increasing the risk of in-work 
poverty18.  In  future,  wage  developments  will  need  to  strike  a  balance  between  recouping  the  lost 
purchasing power of workers, avoiding second-round effects on inflation and safeguarding the EU’s 
competitiveness. Strong social dialogue and effective collective bargaining are more important than 
ever for delivering balanced wage-setting outcomes. 

The need for adequate and sustainable social protection and inclusion policies remains high. In 
light of demographic changes and fast-evolving labour markets, sustainable social protection systems 
are essential, while ensuring access to social protection and adequate income support. This is also 
needed to mitigate the impact of high inflation and decreasing purchasing power and address energy 
poverty.  It  should  be  combined  with  support  to  labour  market  integration  and  access  to  essential 
services for people who lack resources19. Fair transitions are needed for all, for instance to make sure 
that green and digital innovations are affordable for lower income earners and that no region is left 
behind.  

Cohesion  policy  funds,  together  with  national  RRPs,  support  Member  States  in  progressing 
towards their 2030 national targets on employment, skills and poverty reduction. With Member 
States including significant reforms and investments in the labour market and social policies in their 
RRPs, EUR 140 billion (around 28%) of the estimated costs of the RRPs contributes to social policies, 
including around EUR 73 billion on education and skills20 and around EUR 43 billion on healthcare. 
Under  the  cohesion  policy  funds,  in  particular  the  European  Social  Fund  Plus  (ESF+)  and  the 
European Regional Development Fund (ERDF), EUR 109 billion is also invested in the social policy 
area. Synergies between the RRF and cohesion policy funds are clearly visible. For instance, several 
Member  States  have  introduced  reforms  in  their  RRPs  that  create  legal  entitlements  for  early 
childhood education and care (ECEC). At the same time, cohesion policy funds (especially ESF+ and 

16 Notably via the EU Talent Pool, launched on 15 November 2023 as part of the Skills and Talent Mobility package. 
17 European Year of Skills (europa.eu). 
18 Eurofound (2023), Minimum wages in 2023: Annual review. 
19 In line with Council Recommendation of 30 January 2023 on adequate minimum income ensuring active inclusion. 
20 Data as of 6 November 2023, based on the pillar tagging methodology for the RRF Scoreboard. Data on education and skills correspond to 
measures allocated to the policy area ‘Early childhood education and care’, ‘General, vocational and higher education’, ‘Adult learning’, ‘Human 
capital in digitalisation’ or ‘Green skills and jobs’ as primary or secondary policy area. 

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ERDF), in some cases aided by RRP investments, are used in particular to develop ECEC services 
and  build  kindergartens  in  response  to  increased  demand.  Cohesion  policy  funds  often  build  on 
reforms  initiated  under  the  RRPs  and  already  finance  some  of  the  needs.  They  can  also  target 
particular regional needs or specific population groups such as Roma (e.g. by investing at regional 
level in inclusive education or financing active labour market policies). 

The continued implementation of the European Pillar of Social Rights remains a policy priority 
to  promote  upward  social  convergence  in  the  EU.  To  provide  a  more  systematic  analysis  of 
employment and social developments  in  the Member States, the Commission proposal  for a Joint 
Employment Report 202421 includes a stronger country focus in the form of a country-by-country 
analysis, based on the principles of a Social Convergence Framework22. 

3.  EU financing the green and digital transitions 

EU  funding  has  proven  to  be  an  essential  tool  for  financing  the  actions  necessary  to  foster 
competitive sustainability at national and regional level. The effective and flexible use of existing 
instruments  under  the  EU  budget,  notably  cohesion  policy  funds,  and  the  introduction  of  new 
instruments,  in  particular  the  RRF  and  its  REPowerEU  chapters,  allow  the  EU  to  tackle  its  main 
economic and social challenges head on, together with Member States and their regions. Through the 
InvestEU programme, the EU is providing guarantees to mobilise private investments for top policy 
priorities such as the green and digital transition, innovation and social investments and skills, as well 
as support for SMEs. And the JTF is assisting the regions most affected by the green transition in 
diversifying  their economies and creating new jobs. Each instrument  has helped to  target  funding 
gaps and investment bottlenecks through its own focus and strengths, while synergies are becoming 
readily apparent. Complementarity can be seen along a number of different lines, in particular related 
to the nature of the reforms, the geographic dimension of the investments and the timing, and can be 
fostered by support provided under the TSI.  

The  RRF  complements  cohesion  policy  funds  with  transformative  reforms.  Enabling  reforms 
help remove investment bottlenecks and facilitate and accelerate investment roll-out of national and 
EU-level funds. This includes the transformative reforms supported in each recovery and resilience 
plan  under  the  RRF,  alongside  enabling  conditions  required  under  Cohesion  Policy  funds.  For 
example,  RRF  reforms  that  unlock  permitting  processes  for  the  green  transition  also  under  the 
REPowerEU umbrella, improve the digitalisation of public administration and create an investment-
friendly climate by addressing regulatory hurdles, such as reducing bureaucracy. Far-reaching labour 
market  reforms  in  the  RRF,  along  with  the  enabling  conditions  in  cohesion  policy  programmes, 
address often long-standing structural challenges, where they complement investments for example 
in skills and social protection. Finally, all funds benefit from those reforms that ensure the protection 
of the EU’s financial interests, such as those tackling corruption or addressing rule of law issues.  

Together, cohesion policy funds and RRF investments ensure comprehensive national, regional 
and  local  coverage,  including  beyond  2026.  Alongside  cohesion  policy,  the  implementation  of 
RRPs is an opportunity to target different areas. Moreover, with their longer implementation timeline, 

21 Commission proposal for a Joint Employment Report 2024 - COM(2023) 904 
22 The Social Convergence Framework has been discussed and developed in cooperation with Member States. See 
https://data.consilium.europa.eu/doc/document/ST-9481-2023-INIT/en/pdf. 

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cohesion  programmes  will  continue  to  maintain  the  momentum  generated  by  the  RRF,  thereby 
securing a high level of public investment and leveraging private investment in the longer term. As 
part of the cohesion policy mid-term review, Member States have the opportunity to review cohesion 
programmes  that  allocate  funds  in  order  to  tackle  those  areas  where  there  are  pressing  needs  and 
emerging challenges, while maximising synergies.  

Box 1. Examples of complementarity between RRF and cohesion policy funds under the 
2021-2027 programming period 

-  In Spain, the combined action of the RRP and cohesion policy funds are improving water 
management. The RRP introduces a reform that updates the Water Law, its regulations and 
other secondary legislation to ensure a legal framework that helps strengthen and increase 
investments in the water management sector, while cohesion policy funds that finance water 
management  systems,  that  reduce  the  loss  of  resources  and  improving  efficiency  in 
distribution systems.  

-  In Croatia, the RRP supports the introduction of a single shift in all primary schools as the 
basis for the introduction of a whole-day school model. Cohesion policy funds significantly 
add  to  this  by  financing  various  aspects  of  the  modernisation  of  institutions  that  provide 
primary  education,  including  by  financing  infrastructure  and  equipment  to  enable 
implementation of a whole-day school model in schools that are already operating in a single 
shift.  

-  The  Slovenian  RRP  includes  a  reform  that  will  make  the  Slovenian  public  passenger 
transport more efficient  by establishing  a new coordination entity.  This  will  facilitate the 
implementation of cohesion policy investments in this sector, such as upgrading railways 
and supporting sustainable modes of transport.  

4.  Features of the European Semester 2024 

The  implementation  of  RRPs  and  complementarity  with  other  EU  funding  instruments  will 
frame  the  European  Semester  in  2024.  While  the  ongoing  implementation  of  the  RRPs  will 
continue to deliver on reforms and investments, responding to CSRs, this cycle will also explore how 
actions under RRPs interact with other EU funding instruments in achieving common policy goals.  

Country  reports  and  in-depth  reviews  will  identify  structural  and  emerging  challenges  to 
unlock the competitiveness potential in each Member State. The 2024 country reports will include 
an evaluation of progress made towards the European Green Deal objectives, the European Pillar of 
Social Rights including the 2030 targets on employment, skills, education and poverty reduction, and 
in tackling a range of obstacles to industry that hinder the twin transitions. The European Semester 
will continue to be a main vehicle for monitoring and promoting progress towards the Sustainable 
Development Goals, also in a context of increased attention on sustainable and inclusive wellbeing 
beyond GDP.  

The 2024 CSRs will focus on a limited selection of challenges and will detail key investment 
needs for the mid-term review of the 2021-2027 cohesion policy programmes. While the RRPs 
are  being  implemented  and  additional  measures  have  been  added  through  REPowerEU  chapters, 
remaining or new policy challenges will be identified in the country reports and, where applicable, 

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within the context of in-depth reviews. The country reports, along with the proposals for CSRs, will 
form the 2024 European Semester Spring package to be adopted in June 2024. The new cycle will 
also inform the upcoming cohesion policy mid-term review.  

The  involvement  of  the  European  Parliament,  the  Council,  social  partners  and  other  key 
stakeholders will continue to be a key feature. Close cooperation is vital, achieved through regular 
meetings  at  key  Semester  and  RRF  stages.  Member  States  are  urged  to  actively  engage  with 
stakeholders, including social partners, local and regional authorities, as well as relevant civil society 
organisations.  Inter-institutional  dialogue  with  the  European  Parliament  and  the  Council  will 
continue, ensuring democratic accountability and collaboration on economic governance.  

5.  Conclusion  

In response to a changing world, the EU is dedicated to enhancing its long-term competitiveness 
through  a  green  and  digital  transition,  while  ensuring  social  fairness.  Under  the  European 
Semester, the Commission will continue to monitor social and economic impacts closely and propose 
recommendations  to  unlock  the  competitiveness  potential  of  each  Member  State,  promoting  open 
strategic autonomy and net zero growth and a fair green and digital transition, while reducing regional 
disparities.  In  this  respect,  the  2024  cycle  of  the  European  Semester  will  specifically  focus  on 
ensuring and expanding synergies and complementarities between the implementation of the RRPs 
and the cohesion  policy  programmes,  while pinpointing  areas with  further investment  and reform 
needs at national and regional level.  

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