COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2024 European Semester - Spring Package
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: EU Member State, EU energy policy, EU environmental policy, European Semester, competitiveness, economic forecasting, economic policy, economic reform, macroeconomics, productivity

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 600 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2024 European Semester - Spring Package  
 
 
1. INTRODUCTION 

Over the past  five  years, the EU has  demonstrated a high degree of  economic and social 
resilience in the face of major shocks, thanks in particular to a coordinated policy response. 
The EU and its Member States have successfully faced the socio-economic consequences of the 
COVID-19 pandemic, Russia’s war of aggression against Ukraine and the related energy price 
surges and inflation hikes. While the EU’s economy posted a strong recovery after the pandemic, 
the fallout from the energy crisis sparked by Russia’s war of aggression led to a marked slowdown 
in  2023.  Growth  is  expected  to  pick  up  gradually  over  the  course  of  this  year  and  next.  The 
European Semester for economic and social policy coordination has supported policy responses, 
aimed at delivering a sustainable recovery and the green and digital transition, while strengthening 
the  resilience  of  the  EU.  It  identified  Member  States’  specific  reform  and  investment  needs, 
tackling  both  long-standing  and  new  challenges,  and  guided  their  responses  to  the  COVID-19 
crisis  and the energy supply  and price shocks. The  country-specific  recommendations (CSRs), 
proposed  by  the  Commission  and  endorsed  by  the  Council  in  the  context  of  the  European 
Semester, were the basis for the programming under cohesion policy and for the national recovery 
and resilience plans (RRPs), including the REPowerEU chapters, which Member States prepared 
to  meet  the  above-mentioned  challenges  within  the  framework  of  NextGenerationEU. 
Furthermore, the Semester remains key for the implementation of the European Pillar of Social 
Rights and the achievement of the EU 2030 headline targets for jobs, skills and poverty reduction.  

The  European  Semester  has  enabled  EU  funding  instruments  to  support  EU  policy 
objectives in a targeted and efficient way. The ongoing implementation of the Recovery and 
Resilience  Facility  (RRF),  including  the  introduction  of  dedicated  REPowerEU  chapters  in 
national RRPs, the Technical Support Instrument, and the use of cohesion policy funds, continue 
to play a pivotal role in shaping reform and investment agendas in all Member States. As set out 
in  the  Annual  Sustainable  Growth  Survey,  the  2024  cycle  of  the  European  Semester  explores 
complementarities and synergies between different EU funding instruments and Member States’ 
reform  and  investment  actions  and  takes  stock  of  the  ongoing  implementation  of  RRPs  and 
cohesion policy programmes. The RRF has disbursed over EUR 240 billion to Member States in 
grants and loans so far, representing 37% of total funds available. Also, over EUR 256 billion has 
been disbursed under the cohesion policy funds since the beginning of the COVID-19 pandemic. 
As illustrated in this year’s country reports, these instruments and other EU funding programs 
have supported the EU’s recovery towards a greener, more digital, fairer and more resilient future 
through  job  creation,  improved  competitiveness,  macroeconomic  stability  and  territorial  and 
social cohesion. In addition, this Semester cycle provides guidance in view of the forthcoming 
mid-term  review  of  cohesion  policy  programmes.  It  includes  a  call  to  make  use  of  the 
opportunities provided by the Strategic Technologies for Europe Platform (STEP) initiative to 
support the development of manufacturing capacities in critical technologies, while promoting a 
level playing field. 

The  EU  is  determined  to  take  further  steps  to  ensure  its  long-term  competitiveness, 
prosperity and leadership on the global stage and to strengthen its open strategic autonomy. 
The EU and its Member States have strong assets to build on: highly qualified workers; excellence 
in  research; quality  infrastructure; a solid  manufacturing base in  key sectors; a strong services 
sector; highly developed social welfare systems and a comprehensive green and digital transition 
strategy.  Additionally,  the  four  freedoms  of  the  single  market  are  a  powerful  engine  for 
convergence  and  growth,  promoting  a  highly  competitive  social  market  economy,  economic, 

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social and territorial  cohesion, and a level playing field. Economic convergence is particularly 
evident  for  the  13  Member  States  which  joined  the  EU  since  2004  and  have  witnessed  an 
impressive, uninterrupted economic and social catch-up, resilient to the major crises that the EU 
has weathered (1). Nonetheless, the EU economy faces challenges to its competitiveness, with low 
productivity growth, intensified by weak investment dynamics and persistently high labour and 
skill shortages. There is also ample room for further upward economic and social convergence, 
both between and within Member States. The EU will continue to address the structural challenges 
that hamper its competitiveness and resilience. This requires deepening the single market across 
its four dimensions; well-focused investments at EU, national and regional level; and an ambitious 
reform agenda. In addition to the analysis provided by the Commission (2), the high-level report 
by Enrico Letta (3) lays out concrete proposals to inform the discussion about the future of the 
single market around key priority areas (4). Further guidance will be provided by the high-level 
report on the EU’s competitiveness by Mario Draghi. In this Spring Package, the Commission 
provides analysis and proposes CSRs to address major bottlenecks and to put in place the right 
conditions to boost competitiveness, while aligning such actions with the EU’s pursuit of the UN’s 
Sustainable Development Goals (SDGs).   

2. REVISED ECONOMIC GOVERNANCE FRAMEWORK  

The revised legislation reforming the EU economic governance framework came into force 
on 30 April 2024 (5). The reform addresses the shortcomings of the previous framework, making 
it simpler, more transparent and effective, with greater national ownership and better enforcement. 
The  reformed  framework  aims  to  strengthen  debt  sustainability  through  gradual  fiscal 
consolidation while safeguarding public investment. It promotes sustainable and inclusive growth 
in all Member States through reforms and investments, including in strategic areas such as the 
green  and  digital  transition,  social  and  economic  resilience  and  the  implementation  of  the 
European Pillar of Social Rights, energy security and the build-up of defence capabilities. The 
reformed framework will be fully embedded within the European Semester. At the heart of the 
new framework, Member States are expected to prepare medium-term fiscal-structural plans, in 
which they will set out their expenditure paths and their priority reforms and investments for the 
coming four years. The credibility of the new framework will be underpinned by the association 
of national parliaments and other national stakeholders, including independent fiscal institutions 
and social partners, in particular when preparing the plans. This process should strengthen national 
ownership by providing Member States with greater leeway in designing their fiscal adjustment 
paths, and setting out reform and investment commitments, in line with the common priorities of 
the EU and necessary investments in European public goods.  Member States will present annual 

(1) Expressed in purchasing power standards, GDP per capita of the 10 “new” Member States, which joined EU 
20 year ago, increased from 51 % at the time of accession, 2004, to 79% in 2023. See European Commission 
(2024), 2024 Spring forecast.  
(2)For example in the Commission’s Communication on Long-term-competitiveness; the 2024 Annual Single 
Market and Competitiveness Report and the Ninth report on economic, social and territorial cohesion’. 
(3) Enrico Letta, ‘Much more than a market’ (April 2024) (europa.eu). 
(4) Such as improving access to capital for European companies; reducing the cost of energy; improving the 
skills of our workforce; strengthening trade with the rest of the world 
(5) The entry into force of this legislation marks the end of the economic governance review, which the 
Commission launched in February 2020. On 26 April 2023, the Commission came forward with legislative 
proposals. 

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progress reports to facilitate more effective monitoring and enforcement of the implementation of 
their commitments.   

The  Commission  is  working  with  Member  States  to  ensure  the  timely  submission, 
assessment,  and  endorsement  of  the  first  set  of  medium-term  fiscal-structural  plans.  On 
21 June,  the  Commission  is  set  to  provide  Member  States  with  guidance  on  the  information 
requirements  for  the  plans  and  the  subsequent  annual  progress  reports.  Where  applicable,  the 
Commission will transmit to Member States numerical guidance on the fiscal adjustments (the 
reference trajectories and technical information). Following this guidance, the Member States and 
the Commission will have technical dialogues to help prepare the plans. Member States should 
submit  their  first  medium-term  fiscal-structural  plan  in  the  autumn.  The  legal  deadline  is 
20 September unless the Member State and the Commission agree to extend that deadline by a 
reasonable period. In order to ensure that the budgets for 2025 are the first step in implementing 
the medium-term fiscal-structural plans and to ensure full implementation from 2025 onwards, 
medium-term fiscal-structural plans will be assessed together with the Draft Budgetary Plans for 
euro area Member States, which have to be submitted by 15 October. 

The CSRs, including those proposed by the Commission in this Spring Package, strongly 
underpin the reform and investment commitments to be set out in Member States’ medium-
term fiscal-structural  plans. The plans will explain how Member States intend to  ensure the 
delivery of reforms and investments in response to the main challenges identified in the context 
of the European Semester and to the common priorities of the EU. When a Member State comes 
forward  with  a  set  of  reform  and  investment  commitments  underpinning  an  extension  of  the 
adjustment period by up to three years, these commitments should result in an improvement of 
the growth and resilience potential of the economy of the Member State concerned in a sustainable 
manner, and support fiscal sustainability, ensure sustained public investment, and address relevant 
country-specific recommendations as well as the common Union priorities. 

3. KEY OBJECTIVES FOR THE 2024 COUNTRY SPECIFIC 
RECOMMENDATIONS 

The  2024  country  reports  comprehensively  analyse  Member  States’  economic  and  social 
developments  and  provide  an  overview  of  their  competitiveness.  The  reports  identify  key 
outstanding challenges requiring further policy action, with a focus on competitiveness. They also 
offer an updated assessment of the progress made in implementing past CSRs, the European Pillar 
of Social Rights and the related EU 2030 targets for employment, skills and poverty reduction as 
well  as  SDG  targets.  The  reports  equally  take  stock  of  the  ongoing  implementation  of  RRPs, 
including their REPowerEU chapters, and the cohesion policy programmes, outlining how these 
instruments complement each other. Furthermore, they identify key priorities in view of the mid-
term review of cohesion policy programmes. 

Based  on  the  analysis  in  the  country  reports,  the  Commission  recommendations  for  the 
CSRs aim to strengthen Member States’ competitiveness. Member States are invited to act 
quickly and ensure timely implementation of cohesion policy programmes as well as the reforms 
and investments in their RRPs, including those in the REPowerEU chapters. Despite the continued 
progress made, some Member States face substantial delays and significant difficulties, requiring 
swift action. CSRs continue to identify challenges that are only partially or not addressed by the 
RRPs. At the same time, new challenges and policy priorities have emerged, and existing ones 
have  been  amplified  with  regards  to  their  impact  on  competitiveness,  which  require  Member 

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States to take additional policy action. In this regard, Member States are set to include reforms 
and investments in their forthcoming medium-term fiscal-structural plans (6), among other things, 
to underpin the possible extension of an adjustment period. Furthermore, the mid-term review of 
cohesion policy programmes is an opportunity to look at challenges and vulnerabilities that have 
become more prominent since the latest programmes’ approval. 

For each Member State, the CSRs comprise: 

1.  a recommendation on fiscal policy, including fiscal-structural reforms where relevant;  
2.  a recommendation on the implementation of the RRP and cohesion policy programmes, 
taking  into  account  country-specific  risks  as  regards  implementation,  which  includes 
guidance in view of the mid-term review of cohesion policy programmes; 

3.  where  relevant,  further  recommendations  on  outstanding  and/or  newly  emerging 

challenges, focusing on improving competitiveness. 

4. REMAINING CHALLENGES AHEAD 

4.1 Macroeconomic stability 

The  EU’s  economic growth  is  set  to increase  gradually in 2024, albeit at an uneven pace 
across Member States. The strong GDP growth in 2021-2022, compounded with high inflation, 
led to a marked decline in debt-to-GDP ratios. This decline is set to slow against a backdrop of 
lower  inflation  and  growth  remaining  moderate.  After  the  slowdown  in  2023  GDP  growth  is 
expected to pick up gradually, to 1.0% in 2024 and 1.6% in 2025. On the external side, the marked 
fall  in  energy  prices  in  2023  improved  the  positions  of  current  accounts  in  Europe.  The 
Commission  has  identified  vulnerabilities  related  to  macroeconomic  imbalances  or  excessive 
imbalances in nine Member States in the context of the macroeconomic imbalance procedure. Box 
2 summarises the findings on macroeconomic imbalances in the Member States.   

Accelerating  the  completion  of  the  Banking  Union  and  progress  on  the  Capital  Markets 
Union will further safeguard financial stability and is essential to finance the twin green and 
digital transitions and boost competitiveness. The EU’s banking system is sound, as confirmed 
by  the  results  of  the  latest  stress  tests  by  the  European  Banking  Authority  and  the  European 
Central  Bank.  However,  the  outlook  for  the  EU  financial  system  is  more  challenging  with 
prospects  of higher  financing  costs, lower interest  income,  and  slower loan growth  along  with 
modest  economic  growth.  Completing  the  Banking  Union,  including  through  introducing  a 
common  deposit  insurance  scheme,  is  a  key  priority  to  achieve  greater  financial  stability  and 
support appropriate funding to the EU economy. To match the substantial financial needs linked 
to  the  green  and  digital  transitions  and  to  spur  innovation  and  competitiveness,  market-based 
funding opportunities must complement bank financing and urgently become more widely and 
readily available in Europe. Making the EU’s economy more productive, resilient and competitive 
relies on integrated, deep and liquid capital markets that can make best use of Europeans’ savings 
and allocate capital more efficiently, including to innovative start-ups and scale-ups. In line with 
the  recent  Conclusions  of  the  European  Council  and  the  statement  of  the  Eurogroup,  the 

(6)  The  plan  should  explain  how  the  delivery  of  investments  and  reforms  responding  to  the  relevant  country-
specific recommendations will be ensured. Country-specific recommendations should be considered ‘relevant’ as 
long as the Member State has not yet made ‘full’ or ‘substantial’ progress in addressing them as assessed during 
the European Semester surveillance exercise. 

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Commission continues working on measures to create a genuine single market for capital for the 
benefits of citizens and businesses across the Union. 

2024 marks a year of transition for fiscal policy coordination in the EU, with the entry into 
force of the revised economic governance framework. The COVID-19 crisis, the temporary 
surge in energy prices, and the required policy response have contributed to a substantial increase 
in public debt in several Member States in recent years. Fiscal support should now be scaled back 
in order to put debt on a downward path or to keep it at prudent levels. For 2024, the Council 
recommendations  of  July  2023  include  quantified  guidance  that  remains  valid.  For  2025  and 
beyond, prudent fiscal policies should ensure that the growth in net expenditure (7) is consistent 
with  the  fiscal  adjustment  requirements  under  the  new  governance  framework.  Concretely, 
Member States with public debt above 60% of GDP or a deficit above 3% of GDP should ensure 
that the growth in net expenditure is limited to a rate that puts the government debt-to-GDP ratio 
on  a  plausible  downward  path  over  the  medium  term,  while  bringing  the  general  government 
deficit to below 3% of GDP and maintaining it below this reference value over the medium term. 
Besides the need to maintain a prudent fiscal strategy, public investment needs to be maintained, 
and where needed increased, to  support long-term  growth, social and economic resilience, the 
green  and  digital  transitions  and  the  build-up  of  defence  capabilities.  The  European  Union  is 
committed  to  increasing  its  overall  defence  readiness  and  capabilities  to  match  its  needs  and 
ambition in the context of rising threats and security challenges. In order to improve the European 
defence industry’s access to public and private finance, the Commission will follow up the request 
of the European Council to explore all options for mobilising funding.  

The Commission intends to propose that the Council opens excessive deficit procedures, as 
announced in the Communication on fiscal policy guidance for 2024 (8). In a first step, as part 
of this package, the Commission is putting forward a report examining the reasons for the excess 
over the 3% of GDP deficit reference value in 12 Member States (see Box 1). The report concludes 
that the deficit criterion is not fulfilled in seven Member States. This means that, for these Member 
States,  the  Commission  intends  to  propose  to  the  Council,  in  July,  decisions  establishing  the 
existence of an excessive deficit, following the Opinion of the Economic and Financial Committee. 
The  next  step  in  the  procedure,  namely  the  Commission  Recommendations  for  Council 
Recommendations on the correction of the excessive deficits,  will  take place together with  the 
Commission Opinions on the Draft Budgetary Plans of euro area Member States. This approach 
will ensure consistency between the budgetary requirements under the excessive deficit procedure 
and the adjustment path set out in the medium-term fiscal-structural plans, provided that Member 
States’  medium-term  fiscal-structural  plans  are  submitted  in  time,  as  called  for  above.  In  the 
absence of the plan by the time of the Commission Opinion on the Draft Budgetary Plans and to 
avoid a surveillance gap under the excessive deficit procedure, the budgetary requirements under 
the  excessive  deficit  procedure  would  be  based  on  the  reference  trajectories.  This  timeline  is 
exceptional and linked to the transition to the new framework, therefore not setting a precedent. 

(7) ‘Net expenditure’ means government expenditure net of interest expenditure, discretionary revenue measures,  
expenditure on programmes of the Union fully matched by revenue from Union funds, national expenditure on  
co-financing of programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and  
one-offs and other temporary measures 
(8)  Communication on fiscal policy guidance for 2024, COM(2023) 141 final, 8 March 2023. 

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

As part of the Spring 2024 European Semester package, the Commission has adopted a report 
under Article 126(3) TFEU for 12 Member States. These are Belgium, Czechia, Estonia, Spain, 
France,  Italy,  Hungary,  Malta,  Poland,  Slovenia,  Slovakia  and  Finland.  For  all  these  Member 
States, the report assesses their compliance with the deficit criterion. For 10 of these Member States 
(Belgium, Czechia, Estonia, Spain, France, Italy, Hungary, Malta, Poland and Slovakia), the Report 
is based on a general government deficit outturn above 3% of GDP in 2023. Slovenia and Finland 
are included due to a planned deficit in 2024 exceeding the 3% of GDP reference value. The report 
concludes  that  the  deficit  criterion  is  complied  with  for  Czechia,  Estonia,  Spain,  Slovenia,  and 
Finland  and not complied with for Belgium, France, Italy, Hungary, Malta, Slovakia and Poland. 
Compliance with the debt criterion cannot be fully assessed at this stage in accordance with the 
criteria of the new framework i.e., without a net expenditure path approved by the Council (9).  

Romania, which has been in an excessive deficit position since 2020, is assessed as not having 
taken  effective  action  to  correct  this  situation.  On  3 April 2020,  the  Council  decided  that  an 
excessive deficit existed in Romania based on 2019 data. In its Recommendation of 17 June 2022, 
the Council asked Romania to put an end to the excessive deficit situation by 2024 at the latest. 
Romania’s general government deficit in 2022 was in line with the 2022 Council Recommendation 
but  deviated  from  the  2023  Council  Recommendation.  The  Commission  includes  in  today’s 
package a proposal for a Council Decision establishing that Romania has not taken effective action 
in response to the Council Recommendation of 17 June 2022. 

Further  strengthening  the  fiscal  sustainability  of  public  pension  systems  and  the  cost-
effectiveness of health and long-term care systems in the face of ageing populations, while 
ensuring adequacy quality and access, should remain a key objective for Member States. 
Ageing-related costs represent about a fifth of GDP for the EU and are projected to significantly 
increase  over  the  medium  and  long  term (10).  Pension,  healthcare  and  long-term  care  systems 
should adapt to these challenges, including through measures to  encourage the participation of 
older workers in the labour market, strengthen sustainability in the pension system and improve 
the cost-effectiveness of healthcare and long-term care systems. 

Tapping into underused sources of taxation and stepping up taxpayer compliance can help 
ensure sufficient tax revenues to support public investment as well as help achieve common 
policy  objectives  and  safeguard  fiscal  sustainability.  A  balanced  and  more  future-proof  tax 
mix, also based on means-testing and distributional impact assessments, will support the delivery 
of inclusive and sustainable growth. This includes shifting some of the tax burden from labour 
taxation towards environmental and recurrent immovable property taxation in a fair and efficient 
manner,  for  instance  by  strengthening  the  polluter  pays  principle.  Effective  tools  to  fight 
aggressive tax planning strategies and improved tax compliance  help ensure that taxpayers are 
fairly treated, the funding of public services is efficient and private investment is supported. The 

(9) The assessment of compliance with the debt criterion has been substantially changed in the revised economic 
governance framework. The debt ratio will be considered as ‘sufficiently diminishing and approaching the 60% 
of GDP reference value at a satisfactory pace’ if the Member State concerned maintains its net expenditure path 
as set by the Council. As the Council has not yet set such net an expenditure path, the debt criterion cannot be 
assessed at this stage.  
(10)  2024  Ageing  Report.  Economic  and  Budgetary  Projections  for  the  EU  Member  States  (2022-2070)’  – 
European Commission (europa.eu) 

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continued  modernisation  and  digitalisation  of  tax  administrations  should  further  reduce 
compliance costs and boost tax revenue. 

Box 2: Macroeconomic imbalances in the Member States 

The Commission has assessed the existence of macroeconomic imbalances for the 12 Member 
States selected for in-depth reviews (IDRs) in the 2024 Alert Mechanism Report. Of those, 11 
Member States had been identified with imbalances or excessive imbalances in the previous cycle 
of  surveillance  under  the  Macroeconomic  Imbalance  Procedure,  and  Slovakia  was  deemed  to 
display  risks  of  newly  emerging  imbalances.  This  year,  in  response  to  a  request  from  Member 
States (11), the IDRs have been presented in advance of the Spring Package to allow for more in-
depth multilateral discussions before the CSRs were formulated in spring (12).   

The classification of imbalances is based on three criteria: (i) the gravity of imbalances, 
(ii) the evolution of imbalances and prospects and (iii) policy responses. It reflects a more 
forward-looking orientation  of the MIP, communicated  as  part of the economic governance 
review.  Under  the  forward-looking  approach,  those  three  criteria  remain  in  place,  but  more 
emphasis  is  placed  on  the  evolution  of  the  underlying  imbalances  and  the  adoption  and 
implementation of policy responses by the national authorities to overcome those imbalances 
or the risks thereof.   

The classifications under the MIP also reflect the entry into force of the new economic 
governance framework by clarifying the respective roles of the MIP and the SGP in the 
overall  macroeconomic  surveillance  when  dealing  with  fiscal  sustainability  risks,  to 
deliver  a  more  focussed  and  efficient  surveillance  regime.  In  brief,  where  risks  are 
essentially rooted in fiscal sustainability concerns and where policy responses are largely in 
the fiscal policy domain, the SGP should be regarded as the appropriate vehicle for surveillance 
and issuing policy recommendations. Where, in addition to fiscal sustainability, there are wider 
macroeconomic  risks  that  require  a  more  complete  policy  response,  the  MIP  remains  an 
appropriate  tool  to  complement  surveillance  under  the  SGP,  including  the  excessive  deficit 
procedure. Where a Member State’s vulnerabilities are not rooted in high government debt or 
fiscal laxity, the MIP is likely to be the only means for ensuring a strong enough surveillance 
mechanism.  

The Commission took several decisions under the Macroeconomic Imbalance Procedure. 
Overall, the assessment of macroeconomic vulnerabilities takes place in a context marked by 
the still high – but falling – inflation, driven by energy prices. The high energy prices have 
impacted  external  balances  negatively,  and  the  ensuing  inflation  led  to  tighter  financing 
conditions for the past two years, while also facilitating the deleveraging of debt stocks. Over 
the  last  year,  housing  prices  have  fallen  in  countries  where  they  were  most  overvalued. 
Vulnerabilities are receding in most of the Member States subject to an in-depth review and in 
several cases leading to an improvement on the classification of imbalances under the MIP. 
However, in a few other Member States vulnerabilities have increased to an extent that lead to 
a new finding of imbalances or excessive imbalances. Developments are generally favourable 
in the remaining Member States analysed but relevant challenges remain.  

(11) Macroeconomic imbalance procedure: Council adopts conclusions – Consilium (europa.eu) 
(12) 2024 IDRs have been published in two batches: a first one on 25 March 2024 with the IDRs for Spain, 
Cyprus, the Netherlands, Romania, Slovakia and Sweden, and a second batch on 23 April with the IDRs for 
Germany, Greece, France, Italy, Hungary and Portugal. 

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France, Spain, and Portugal are no longer experiencing imbalances as vulnerabilities 
• 
have  overall  declined.  Fiscal  sustainability  risks  will  be  surveyed  under  the  reformed  SGP, 
including  in  the  context  of  the  medium-term  fiscal  structural  plan  and  the  excessive  deficit 
procedure for France.  

• 
Greece  and  Italy  are  now  found  to  be  experiencing  imbalances  after  experiencing 
excessive  imbalances  until  last  year  as  vulnerabilities  have  declined  but  remain  a  concern. 
Fiscal sustainability risks will be surveyed under the reformed SGP, including in the context 
of the medium-term fiscal structural plan and the excessive deficit procedure for Italy. 

• 
Slovakia is now found to be experiencing imbalances. The vulnerabilities related to cost 
competitiveness,  external  balance,  housing  market  and  household  debt  have  lingered,  and 
policy action has not been forthcoming.  

• 
Romania  is  now  found  to  be  experiencing  excessive  imbalances  after  experiencing 
imbalances until last year as vulnerabilities related to external accounts, mainly linked to large 
and  increasing  government  deficits,  remain,  while  significant  price  and  cost  pressures  have 
increased and policy action has been weak. 

Germany,  Cyprus,  Hungary,  the  Netherlands,  and  Sweden  continue  to  experience 
• 
imbalances.  For  Germany,  adequate  policy  action  in  the  context  of  the  medium  term  fiscal 
structural plan will be needed to revisit the assessment. 

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

4.2 Productivity 

The  EU  has  experienced  a  slowdown  in  productivity  growth  since  the  early  2000s, 
exacerbated  by  subdued  investment  rates  following  the  financial  crisis  and  a  widening 
productivity gap compared with other major economies. Although investment rates have been 
recovering, the EU’s productivity growth lags behind, particularly when compared to the US. 
This  is  due  to  the  smaller  size  of  high-growth  sectors  like  ICT  manufacturing  and  digital 
services,  innovation  not  being  sufficiently  scaled-up,  a  lack  of  investment  in  research  and 
innovation and persistent skills shortages. In addition, the EU needs a business environment 
that is more conducive to innovation. This requires tackling a series of bottlenecks at regional, 
national and the EU level. In particular, the EU needs to reduce administrative burden, future-
proof  the  single  market,  improve  access  to  finance  and  mobilise  more  private  capital  by 
completing the Baking Union and deepening and integrating our capital markets, increase skills 
levels, and ensure a stable regulatory and leaner reporting environment for businesses.  

Deepening the single market is crucial for unlocking productivity and competitiveness. A 
fully integrated market creates a conducive environment for start-ups and small and medium-
sized enterprises (SMEs) to succeed and achieve the necessary scale to compete globally. Focus 
should be placed on service markets, which are integral to the EU economy and increasingly 
intertwined with the rest of the industrial ecosystems. Joint efforts are required at EU, national, 
regional  and  local  level,  in  particular,  to  reduce  red  tape,  reporting  obligations  and  tax 
compliance  costs,  to  unify  standards,  and  remove  investment  barriers.  The  Commission 
recently put forward the first legislative proposals to reduce reporting obligations at European 
level by 25%, and Member States are encouraged to match this level of ambition. Increasing 
competition through public procurement as well as improving governance and administrative 

8 

 
 
 
capacity (13) can equally support a favourable business environment. 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. Participation in the single market of all regions is necessary to integrate them into 
European and global value chains, preventing stagnation of development and thus development 
traps. There is room for further exploiting the potential and competitive advantages of all EU 
regions,  especially  in  those  Member  States  where  economic  development  is  driven  by  the 
competitiveness of capital regions. Improving accessibility and connectivity through enhanced 
investments in transport infrastructures and modern low-emission transport services and modes 
will be key for a geographically balanced  development. In addition, it is important to consider 
any effects that the Russian war of aggression in Ukraine may have on the resilience of regions 
bordering Russia 

A  consistent  and  comprehensive  industrial  policy  is  vital  to  support  the  EU’s 
technological  transformation  and  secure  resilient  supply  chains,  while  preserving 
competitive and undistorted markets. An industrial policy at EU level in coordination with 
actions at national level to preserve a level playing field and the integrity of the single market, 
is  essential  to  help  scale  up  manufacturing  capacity  and  create  quality  jobs,  especially  for 
critical supply chains and technologies. This can be achieved by implementing the Green Deal 
Industrial Plan (14); mobilising EU funds and other EU financial instruments more strategically 
to crowd in further private support; making use of public procurement in strategic sectors to 
support resilient, green, social, digital, and innovative solutions; and the STEP initiative, which 
aims to bolster critical technologies. In parallel, fair competition needs to be ensured, not only 
within the single market but also with regards to third countries. 

Trade policy has an important role to play in strengthening the EU’s competitiveness. 
The  COVID-19  pandemic  and  Russia’s  unprovoked  aggression  against  Ukraine,  caused 
disruptions in our supply chains, revealing vulnerabilities related to a lack of diversification of 
sources for certain critical inputs, and to an overdependency on a limited number of trading 
partners. The best insurance policy for the EU’s supply chains is to rely on a mix of domestic 
and diversified third country suppliers and related industrial capacities. Economic openness is 
a strength, and the EU’s extensive network of trade agreements is helping to support growth 
and jobs. Trade should continue to flow in times of growing international tensions. Faced by 
the threat of overcapacities in strategic sectors triggered by distortive subsidies and unilateral 
trade decisions the EU will seek to make use of all instruments at our disposal to ensure a level 
playing field, improve the transparency of supply chains, increase diversification of vulnerable 
supplies, and work for closer partnerships with our trade partners (15), while strengthening its 
economic security.  

Greater investment in research and innovation (R&I), notably by the private sector, is 
essential to boosting competitiveness. The EU lags behind other major economies like the 
US, China and Japan in business R&I investments. The EU is far from its 3% GDP target for 

(13) Communication from the Commission to the European Parliament, the Council, the European Economic and 
Social Committee and the Committee of the Regions on Enhancing the European Administrative Space 
(ComPAct). 
(14) Communication: A Green Deal Industrial Plan for the Net-Zero Age | European Commission (europa.eu) 
(15) The European Commission and the EU High Representative have set out the Global Gateway, to boost links 
in digital, energy and transport sectors and to strengthen health, education and research systems across the 
world. 

9 

 
 
 
R&I  expenditure (16),  due  to  sluggish  business  sector  spending (17)  and  low  public  R&I 
investment.  Strengthening  incentives  for  private  R&I  investments  requires  supportive 
framework conditions, such as favourable taxation and business environments. Member States 
should  implement  ambitious  reforms  to  build  integrated  R&I  ecosystems,  focusing  on 
governance,  public  research  systems  and  infrastructures,  science-business  collaboration  and 
knowledge transfers, as well as innovation deployment and uptake, including through public 
procurement, with a focus on career prospects for researchers and talent attraction and retention 
throughout Europe. Synergies between programmes at EU and Member States level should be 
maximised.    

Renewed efforts must also be directed at the digital transition, which is crucial to building 
a competitive modern economy. On the one hand, the EU is a global leader in the development 
of  technologies  that  combine  digital  and  green  innovations.  On  the  other  hand,  only  8%  of 
businesses  used  AI  technologies  in  2023  and  only  58%  of  SMEs  achieved  basic  digital 
intensity. The EU has increased its efforts to strengthen digital capabilities, by providing higher 
levels of EU funding, including through RRPs and cohesion policy programmes, and launching 
initiatives  such  as  the  Important  Projects  of  Common  European  Interest  (IPCEIs)  for 
microelectronics  (18)  and  cloud  computing  technologies  (19).  Nevertheless,  further  public 
investment is needed in digital infrastructure and skills, in particular to address the shortage of 
ICT  specialists  (20)  and  bridge  the  digital  divide.  Additionally,  initiatives  lifting  barriers  to 
cross-border  use  of  technologies,  simplifying  administrative  procedures  and  automating  the 
exchange of information within the EU are also crucial for the digital transition. At Member 
State level, private investment and public procurement in digital technologies and Artificial 
Intelligence (AI) should be incentivised. 

Improving access to finance for innovative projects is critical, especially for start-ups, as 
well as for scale-ups. The EU’s performance is  hindered by risky and innovative activities 
having only limited access to financing, such as equity financing and venture capital (21). This 
underdevelopment contributes to the low number of EU start-ups achieving large valuations 
and succeeding in world markets. National reforms to improve savings allocation and capital 
financing,  and  to  facilitate  capital  market  and  alternative  forms  of  financing,  especially  for 
SMEs  and  social  economy  enterprises,  are  necessary  to  address  these  shortcomings  and  to 
support productivity and innovation across the Union. At EU level, accelerating the progress 
on the Capital Markets Union is essential to increase market-based sources of financing for 
companies of all sizes  and to  integrate EU capital  markets  into a genuine single market  for 
capital.  A  swift  and  ambitious  agreement  by  the  EU  co-legislators  on  the  Commission’s 
proposal  aimed  at  ensuring  effective  and  harmonised  insolvency  frameworks  would  favour 
more effective allocation of resources and support activities and sectors with the best growth 
potential.  

(16) The Pact for Research and Innovation in Europe (2021) reaffirms an investment target of 3% of GDP for 
R&D. This was reiterated among others in the European Council Conclusions from 17./18. April 2024. 
(17) 1.2% of GDP against 2.3% observed in the US. 
(18) IPCEI on Microelectronics – Important Project of Common European Interest (ipcei-me.eu) 
(19) Common European Interest in computing technologies (europa.eu) 
(20) In addition, the gender gap in ICT skills is a source of concern. In 2021, the latest year for which data are 
available, 81% of employed ICT specialists were male. See https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=ICT_specialists_in_employment 
(21) The European Innovation Council (EIC) has improved the availability of access to finance for young 
companies at European level. 

10 

 
 
 
Improving  educational  outcomes  and  skills  development  is  essential  for  the  EU’s 
productivity  and  competitiveness.  Strengthened  skill  sets  are  needed  for  the  changing 
economy and for succeeding in the green and digital transition. At the same time, the latest 
OECD Programme for International Student Assessment (PISA) test results show a significant 
decline  in  the  basic  skills  of  15-year-old  pupils  across  the  EU.  Access  to  high-quality  and 
inclusive education and training, with qualified teachers and modernised curricula in Member 
States and their regions remains crucial to ensure the EU’s prosperity, social progress and to 
overcome the talent development trap faced by some regions (22). Improving skills in science, 
technology,  engineering  and  mathematics  (STEM)  and  increasing  the  number  of  STEM 
graduates, notably women, will also boost research, innovation and competitiveness.  

4.3 Environmental sustainability 

In line with its objective to reach climate neutrality by 2050 and to increase competitiveness 
and open strategic autonomy, the EU will continue its efforts to diversify energy supplies 
and modernise energy  infrastructure. The share of Russian imports in total  EU gas  imports 
dropped to 15% in 2023, from around 40% historically, but further efforts are needed from certain 
Member States to phase out imports of liquefied natural gas from Russia. The vast majority of EU 
countries have included REPowerEU chapters in their amended RRPs, amounting to over EUR 
60 billion, increasing the uptake of renewables and energy efficiency and the needed reduction of 
dependence on fossil fuels before 2030. The envisaged cohesion policy support of EUR 47 billion 
in energy efficiency, renewable energy and smart energy systems will also play an important role 
in  implementing  several  key  actions  under  the  REPowerEU  plan.  Investments  in  energy 
production supported by the RRF are expected to provide at least 60 GW of additional renewable 
energy capacities by 2026 and 9.5 GW of additional renewable energy capacity will be installed 
under  cohesion  policy  by  2029.  In  2023,  the  share  of  renewable  energy  sources  in  electricity 
generation increased to 43% (23) and reforms on permitting procedures, also as part of the RPPs, 
have contributed to this substantial increase. To keep up this momentum, remaining bottlenecks 
related to administrative capacity, including for planning and permitting procedures at local level, 
need to be addressed as a priority. Furthermore, speeding up the expansion and modernisation of 
the electricity networks, including new energy storage facilities and interconnections, is crucial to 
further enable renewables to be integrated into the energy system and to increase electrification. 
The EU grid action plan (24) adopted in November 2023 paves the way for sustainable and resilient 
electricity grids to be created. The first EU list of projects of common and mutual interest (25) 
identifies energy infrastructures that are a priority for the EU in terms implementing the Green 
Deal  and  increasing  energy  security,  focusing  on  the  grids  needed  for  electrification,  offshore 
renewables development and the deployment of the green hydrogen economy. 

Despite  some  progress,  an  ambition  gap  remains  with  regards  to  achieving  the  2030 
objectives for renewable energy and energy efficiency. European industry is facing the burden 
of  comparatively  high  energy  prices.  Reducing  the  demand  for  energy  by  increasing  energy 
efficiency  and  switching  to  less  costly  renewable  energy  is  therefore  essential  to  improve 
European  competitiveness.  However,  most  Member  States  are  lacking  a  solid  and  sufficiently 
detailed  estimation  of  investment  needs,  as  well  as  concrete  measures  to  attract  private 

(22) https://ec.europa.eu/regional_policy/whats-new/newsroom/14-12-2023-eu-addresses-talent-development-
trap-in-new-call-for-regions-to-harness-existing-talent_en 
(23) Global Electricity Review 2024 | Ember (ember-climate.org). 
(24) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2023%3A757%3AFIN    
(25) Regulation (EU) 2022/869 

11 

 
 
 
investments to finance the clean energy transition. The Commission calls on all Member States to 
submit concrete final updated national energy and climate plans (NECPs) by 30 June 2024, taking 
into account its recommendations on the draft plans, and the CSRs of the European Semester. This 
includes the need for Member States to strengthen policies to phase out fossil fuel subsidies to 
align with the EU’s aim to become a climate neutral economy. The Commission also encourages 
Member States to include or further develop chapters on research and innovation in their NECPs, 
referring to the Strategic Energy Technology Plan (26). 

Increasing  the  autonomy,  resilience  and  competitiveness  of  the  EU’s  net-zero  industry  is 
crucial for the green transition and EU competitiveness. To scale up the manufacturing of clean 
technologies, the Net Zero Industry Act (27) was adopted in May 2024. It creates the favourable 
regulatory conditions needed to attract and support investment in technologies and related projects 
to  match  increased  EU  and  global  demand.  It  also  aims  to  speed  up  and streamline  permitting 
procedures  in  Member  States,  in  particular  to  build  more  production  facilities  for  net-zero 
technologies and to invest in the decarbonisation of energy-intensive industrial sites. Examples of 
these technologies include hydrogen-powered transport, sustainable aviation fuels, zero-emission 
vehicles,  high-speed  rail,  and  intelligent  transport  systems.  In  addition  to  EUR  85  billion  for 
investments  in  renewable  energy  and  clean  technologies  under  cohesion  policy,  the  RRF  has 
provided  approximately  EUR  27  billion  in  support  to  net-zero  technology  manufacturing  and 
deployment while the Innovation Fund has provided approximately  EUR 407 million. Member 
States are also encouraged to spend 25% of their ETS auction revenues for that purpose. InvestEU 
has so far mobilised over EUR 250 billion of investments, more than half of which support climate 
action, with two thirds of the finance coming from private investments.  

Meeting  the  EU’s  green  and  digital  transition  objectives  requires  access  to  secure, 
sustainable and diversified sources of critical raw materials (CRMs), building supply chains 
for mining, processing and refining, while promoting sustainable sourcing practices recycling and 
the uptake of secondary raw materials. The Critical Raw Materials Act, which entered into force 
on 23 May 2024, creates a regulatory framework to strengthen the EU’s security of supply for 
CRMs. It designates strategic projects along the value chain of a subset of CRMs and also includes 
measures to strengthen the EU’s monitoring capacities and improve the circularity of critical raw 
materials on the European market. Promoting the circular economy, including circular solutions, 
will further help reach climate neutrality, as it has the potential to save up to 25% of the EU’s 
current greenhouse gas emissions (28).  

With the European Climate Law, the EU has committed to reaching climate neutrality by 
2050 and strengthening climate adaptation. Greater efforts are needed to reduce greenhouse 
gas emissions and energy consumption to reach the binding intermediate 2030 targets, particularly 
in transport, buildings, and agriculture. A substantial part of Member State investments under the 
RRF aim at developing sustainable mobility and at improving the energy efficiency. The Energy 

(26 ) Strategic Energy Technology Plan (europa.eu) 
(27) Net-Zero Industry Act - European Commission (europa.eu) 
(28) European Commission (2024), Impact assessment report accompanying the Communication ‘Securing our 
future  –  Europe's  2040  climate  target  and  path  to  climate  neutrality  by  2050  building  a  sustainable,  just  and 
prosperous society’. 

12 

 
 
 
Performance  of  Buildings  Directive (29)  and  the  New  European  Bauhaus  initiative (30)  are 
instrumental in delivering a climate neutral, circular and nature-positive built environment (31). 
Reducing industrial pollution by rolling out cleaner production technologies would also generate 
significant cost savings (32). The phasing out of fossil fuels, as well as reforming environmentally 
harmful subsidies and implementing green budgeting approaches should also be accelerated. In 
parallel, Member States’ carbon sinks provided by their land use, land-use change and forestry 
(LULUCF)  sectors  need  to  be  strengthened.  Furthermore,  in  March  2024,  the  Commission 
adopted  a  Communication  on  managing  climate  risks  (33)  that  point  to  the  significant  efforts 
required  by  Member  States  to  ensure  that  appropriate  institutional  frameworks  are  in  place  to 
manage  those  risks.  Coastal,  Mediterranean  and  Eastern  regions  are  more  vulnerable  and 
disproportionally affected, and face estimated annual economic losses of at least 1 % of GDP and 
greater human exposure to climate-related harms. Water resilience (34) and availability along with 
water management, especially in regions more affected by climate change and water pollution, 
including the outermost regions, continue to be key for the good functioning of ecosystems. This 
refers especially to the energy transition and energy security of supply. Implementing the polluter 
pays principle would ensure that price signals factor in environmental externalities. 

4.4 Fairness 

The EU’s labour market continues to show resilience with employment close to record levels, 
and real income has started to increase again for most people. Employment growth has been 
stronger among women, legal migrants and older workers. This was accompanied by robust wage 
growth which is projected to increase to 5.9% in 2023. Wage growth exceeded inflation in the 
third quarter of 2023 while real wages are set to fully recover their 2021 levels by 2025. Minimum 
wages keep playing an important role in this regard (35). 

At  the  same  time,  despite  some  easing  in  recent  quarters,  labour  shortages  remain 
widespread across sectors and skills levels (36), while unemployment levels remain high in 
some  regions  and  inequalities  persist.  Ample  scope  remains  to  improve  the  labour  market 
participation of underrepresented groups, including women, older and younger people, as well as 
disadvantaged  groups  such  as  Roma,  people  with  a  migrant  background  and  persons  with 
disabilities, as emphasised in the recently adopted action plan on labour and skills shortages (37), 

(29) https://energy.ec.europa.eu/topics/energy-efficiency/energy-efficient-buildings/energy-performance-
buildings-directive_en 
(30) When implementing their investments, Member States should build on the New European Bauhaus’ values 
and  principles,  to  foster,  where  applicable,  sustainability  with  affordable  solutions  and  by  involving  local 
communities in designing transformation avenues. ‘New European Bauhaus: beautiful, sustainable, together.’ – 
European Union (europa.eu) 
(31) Tools such as ‘Level(s)’ and the Construction and Demolition Waste protocol are hands on guides for building 
and renovation projects that improve lifecycle sustainability performance. Also, green public procurement can be 
applied directly by public authorities. 
(32) Up to EUR 193 billion according to the European Environment Agency (2024), ‘The costs to health and the 
environment from industrial air pollution in Europe  – 2024 update’; figure for main air pollutants (NH3, NOX, 
PM10, SO2, NMVOCs) computed through the value of statistical life method. 
(33)  European  Commission,  ‘Managing  climate  risks  -  protecting  people  and  prosperity’,  see:  b04a5ed8-83da-
4007-9c25-1323ca4f3c92_en (europa.eu) 
(34) The ability to survive and thrive in the face of water-related shocks and stresses, e.g. drought or flooding. 
(35) The adoption of the EU minimum wage directive (Directive (EU) 2022/2041) creates a positive momentum 
for measures ensuring adequate minimum wages. 
(36) At 2.5% in the fourth quarter of 2023, the vacancy rate in the EU remains more than double the level of a 
decade ago. 
(37) Tackling labour and skills shortages in the EU - European Commission (europa.eu). 

13 

 
 
 
as well as the Skills and Talent Mobility Package (38) and the Union of Equality Strategies (39). In 
the long run, labour and skills shortages are likely to increase further, linked to the reduction in 
the  workforce  due  to  demographic  changes,  and  the  increase  in  the  demand  for  workers  with 
specific skills, for instance, those required for the digital and green transitions as well as for the 
healthcare  and  long-term  care  sectors.  The  action  plan  promotes  the  importance  of  increased 
participation in education and training. Member States and social partners need to jointly develop 
skills intelligence, set up new sectoral and regional skills partnerships, and adapt curricula to better 
meet labour market needs, including in vocational education and training. In addition, appropriate 
design of tax and social benefits (with attention to their distributional impact), adequate working 
conditions,  and  improving  active  labour  market  policies  can  help  encourage  labour  market 
participation. Aside from closing gender employment gaps, investments and reforms to improve 
educational outcomes and skills also help improve equal opportunities, labour market outcomes 
and productivity.  

is  key  to  strengthen  productivity  and 
Improving  educational  outcomes  for  all 
competitiveness and supporting upward social convergence in the EU. The overall worrying 
decline in the PISA results reflects a performance that has generally fallen  – including for top 
achievers who are expected to drive future innovation – as well as a widening socio-economic gap 
in education outcomes, underscoring the need to improve educational outcomes overall, reduce 
inequalities and promote excellence in education (40). Inactivity levels remain high among young 
people.  Increasing  gaps,  including  marked  regional  disparities  in  access  to  and  quality  of 
education  hamper  entire  regions  and  disadvantaged  population  groups,  undermining  Member 
States’ social and territorial cohesion and competitiveness. Policy efforts are needed to step up 
the  availability,  inclusiveness  and  the  quality  of  education;  promote  school  success;  provide 
pathways for students to reach excellence; and ensure smooth transitions between education and 
employment. Such efforts ultimately also serve to support democratic values and the functioning 
of our free societies. Stepping up the provision of quality and inclusive early childhood education 
and care services can improve learning opportunities for disadvantaged children and boost female 
labour market participation.  

The  increased  cost  of  living  hurts  the  more  vulnerable  segments  of  our  society  most. 
Although  inflation  is  falling  fast,  higher  costs  of  food,  energy  and  transport  are  negatively 
affecting  particularly  lower  income  groups  and  people  in  disadvantaged  situations (41).  This 
warrants  continued  efforts  to  reduce  poverty,  including  energy  poverty.  While  overall  poverty 
risks remained broadly unchanged, child poverty is rising and gaps in the social situation, e.g. 
between various groups and regions, require continued monitoring. Affordable access to essential 
services continues to be important to meet the basic needs of people, as it leads to lower shares of 
people at risk of poverty or social exclusion and a smaller gender gap in employment (42). The 

(38) The Skills and Talent Mobility Package will help address labour and skills shortages by attracting and 
retaining skilled third-country nationals to the Union via the EU Talent Pool and recognition of qualifications. 
(39) The Union of Equality strategies promote equal opportunities in the labour market and in education for 
women and disadvantaged groups such as persons with disabilities, and those with a minority racial or ethnic 
background, including Roma. 
(40)  Having  increased  disproportionally,  around  half  of  students  of  disadvantaged  socio-economic background 
(48%) did not reach a minimum proficiency level in mathematics in 2022. 
(41) E.g. single parents, persons with disabilities, and people with a migrant background or ethnic national 
minorities (such as Roma). 
(42) The EU regional Social Progress index 2.0 2024 edition. 

14 

 
 
 
insufficient availability of affordable housing is an increasing challenge across the EU, affecting 
some Member States more severely.  

Social protection systems need to be made adequate and fit for the future. Population ageing, 
changes in the world of work, and the green and digital transitions require further development in 
the way social protection systems are designed and financed, to ensure that people continue to 
contribute to and benefit from social protection. This includes strengthening the incentives and 
support  for  beneficiaries  to  enter  the  labour  market,  and  improving  the  adequacy,  cost-
effectiveness and coverage of services, including healthcare and long-term care. In many Member 
States, strengthening the resilience and capacity of healthcare and long-term care systems remains 
a  priority,  including  through  deinstitutionalisation,  sufficient  and  suitable  infrastructure  and 
addressing  workforce  shortages,  including  through  adequate  working  conditions.  Reaping  the 
potential of digital tools and AI can also help deliver access to healthcare more effectively but 
requires  increasing  the  digital  skill  levels  of  the  healthcare  workforce  and  general  public. 
Moreover, it is important to ensure that the digital transformation of health systems benefits all 
citizens and helps narrow health inequalities. Further, Member States are encouraged to address 
demographic change across all policy areas, making use of the available tools at EU level, inluding 
in the Demography Toolbox (43), in combination with national policies and grounding their efforts 
in local realities.  

The transition towards a climate-neutral Europe must be fair and inclusive. Financial and 
technical support of the Just Transition Fund and other instruments is helping vulnerable regions 
to accelerate their economic diversification, and people in those regions to acquire skills for jobs 
that are being created as a result of the transition towards a climate-neutral Europe. 

The implementation of the European Pillar of Social Rights continues to support upward 
social convergence in the EU (44). Despite progress on the 2030 national employment targets, 
further significant efforts are needed by Member States, in particular to meet the targets on skills 
and poverty reduction, also to help achieve the EU-wide commitments in these areas as well as to 
support upward social convergence and social cohesion in the EU. On top of implementing key 
reforms in these areas, Member States are investing strongly in a more social Europe, with over 
EUR 163 billion dedicated to education, health, employment and social policies under the RRF, 
and over EUR 165 billion in investments (with national co-financing) under cohesion policy in 
2021-2027. On 6 May 2024, the Commission published a detailed country analysis in the areas of 
employment, education,  skills and social protection and inclusion for seven Member States, in 
line with the features of the Social Convergence Framework (see Box 3) (45). As part of the Spring 
Package, the Commission is also proposing to update the Employment Guidelines for the next 
annual cycle, to reflect the most recent socio-economic context and policy initiatives. 

(43) EUR-Lex - 52023DC0577 - EN - EUR-Lex (europa.eu) 
(44) Commission’s country analysis on social convergence in line with the features of the Social Convergence 
Framework (SCF) – SWD(2024)132. 
(45) See Commission country analysis on social convergence in line with the features of the Social Convergence 
Framework (SCF) - SWD(2024)132. 

15 

 
 
 
 
Box 3: Analysis of upward social convergence in line with the features of the Social 
Convergence Framework (SCF)  

The Commission assessed the existence of challenges to upward social convergence in seven 
Member States in line with the features of the Social Convergence Framework (SCF).  The 
SCF entails a two-stage analysis of risks and challenges to upward social convergence in Member 
States. In the first-stage analysis, presented in the Joint Employment Report (JER) 2024 (46), labour 
market,  skills  and  social  policies  are  analysed  for  all  Member  States.  Seven  Member  States 
(Bulgaria, Estonia, Spain, Italy, Lithuania, Hungary and Romania) were identified as presenting 
risks  to  upward  social  convergence.  A  second-stage  analysis  for  these  seven  countries  was 
published  by  the  Commission  services  in  May  2024,  focusing  on  the  policy  areas  that  were 
identified  as  presenting  potential  risks  to  upward  social  convergence  in  the  first  stage  via  the 
headline  indicators of  the  Social  Scoreboard.  This second-stage  analysis  relies  on a  wide  set  of 
quantitative and qualitative evidence and the key factors driving the challenges to upward social 
convergence.  It  examines  in  more  detail  the  developments  and  takes  into  account  the  relevant 
policy  responses  undertaken  or  planned  by  the  Member  State. The  findings  of  the  social 
convergence  analysis  are  reflected  in  the  country  reports  and  informed  the  2024  European 
Semester. 

This analysis has fed into the multilateral reviews in the relevant committees of the Council.  

5. CONCLUSION 

The  European  Semester  provides  the  policy  coordination  framework  to  address  key 
economic and social challenges at EU and Member State level. The 2024 European Semester 
cycle is particularly focused on competitiveness, calling on the EU and its Member States to tackle 
obstacles not sufficiently covered by measures in RRPs or cohesion policy programmes. It also 
prepares  the  ground  for  successfully  implementing  the  new  economic  governance  framework, 
which  will  strengthen  fiscal  sustainability  and  support  long-term  sustainable  growth  and 
resilience, while ensuring the EU’s continuous progress towards meeting the SDGs and climate 
and energy objectives in particular. Most Member States are making continued progress in the 
implementation of their RRPs and cohesion policy programmes. However, in view of the 2026 
deadline for RRF spending and of the mid-term review of cohesion policy, some Member States 
are  advised  to  urgently  address  accumulated  delays  and  structural  challenges.  The  mid-term 
review of cohesion policy programmes presents an opportunity to consider adjustments, as well 
as to make use of the STEP initiative to improve competitiveness.  

The Commission calls on the European Council to endorse and on the Council of the EU to 
adopt  the  Commission  proposals  for  the  2024  CSRs.  It  also  calls  on  all  Member  States  to 
implement the recommendations fully and in a timely manner, in close dialogue with their social 
partners, civil society organisations and other stakeholders.  

(46) Joint Employment Report 2024 as adopted by the EPSCO Council on 11 March 2024. 

16 

 
 
 
 
 
APPENDIX 1 – OVERVIEW OF THEMATIC AREAS COVERED IN THE COUNTRY-SPECIFIC RECOMMENDATIONS 

17 

 
 
 
 
 
APPENDIX  2  –  PROGRESS  IN  THE  IMPLEMENTATION  OF  THE  COUNTRY-
SPECIFIC RECOMMENDATIONS 

The 2024 cycle of the European Semester takes stock of the Member States’ policy action 
to  address  structural  challenges  identified  in  the  country-specific  recommendations 
(CSR) adopted since 2019. Following the establishment of the RRF as a key tool to deliver 
on  EU  and  national  policy  priorities,  the  2024  CSR  assessment  considers  the  policy  action 
taken by the Member States to date (47), as well as the commitments undertaken in the recovery 
and  resilience  plans  (RRPs),  depending  on  their  degree  of  implementation.  The  assessment 
therefore reflects the current stage of implementation of RRPs, rather than the level of progress 
that could be achieved assuming full implementation of the plans (48). In line with the scope of 
the RRF, the 2024 CSR assessment covers the 2019-2022 CSRs (multiannual assessment) and 
the assessment of 2023 CSRs (annual assessment). 

Figure 
level 
implementation of 2019-2022 CSRs 

Current 

1: 

of 

Full 
Implementation
5%

Substantial 
Progress
15%

No Progress
3%

Limited 
Progress
26%

Some Progress
51%

Figure  2:  Implementation  of  2019-2023 
each 
CSRs: 
consecutive  year  versus  implementation  to 
date 

assessment 

annual 

in 

100%

80%

60%

40%

20%

0%

s
s
e
r
g
o
r
p
e
m
o
s

t
s
a
e

l

t
a
h
t
i

w
s
R
S
C
f
o
%

2019

2020

2022

2023

Annual assessment
Multiannual assessment
Average of annual assessment
Average of multiannual assessment

Note:  The  multiannual  assessment  in  Figure  1  looks  at  implementation  of  2019-2022  CSRs  from  the  time  the 
recommendations were first adopted until publication of this Communication. To be noted that 2021 CSRs only relate to 
fiscal policy and for the purpose of the 2024 CSR assessment have been considered as no longer relevant. In Figure 2, the 
annual assessment shows the progress recorded in the first year after CSRs adoption, while the multiannual assessment 
shows assessment of past CSRs to date.  

From a multiannual perspective, at least some progress has been achieved for 71% of the 
2019-2022 CSRs (see  Figure 1). Compared to  last  year’s assessment,  significant  additional 
progress has been achieved on both 2019 and 2020 CSRs. To date, 75% of these CSRs have 

(47) Including policy action reported in the national reform programmes, as well as in the RRF reporting (biannual reporting 

on progress in the implementation of milestones and targets and resulting from the payment request assessment).  

(48) Member States were asked to effectively address in their RRPs all or a significant subset of the relevant CSRs. The CSR 
assessment presented here considers the degree of implementation of the measures included in the RRPs and of those done 
outside of the RRPs at the time of assessment. Measures foreseen in the annexes of the adopted Council Implementing 
Decisions on the approval of the assessment of the RRPs, which have not yet been adopted or implemented but are 
considered as credibly announced in line with the CSR assessment methodology, warrant “limited progress”. Once 
implemented, these measures can lead to “some/substantial progress” or “full implementation”, depending on their 
relevance. 

18 

 
 
 
 
 
 
 
 
 
 
 
 
 
recorded at least some progress of implementation, compared to 68% in 2023. This shows that 
the  RRF,  as  a  performance-based  instrument,  continues  to  accelerate  policy  action  to 
implement  relevant  CSRs,  and  it  is  expected  to  further  reinforce  CSR  implementation  as 
additional reforms and investments in the RRPs are undertaken in the coming years. However, 
reform implementation differs significantly across policy areas. In recent years, Member States 
have made most progress in access to finance and financial services, followed by anti-money 
laundering, labour market functining and budgetary framework and fiscal governance. On the 
other  hand,  progress  has  been  particularly  slow  on  taxation  policy,  tax  administration,  tax 
evasion and tax avoidance, non-discrimination and equal opportunities, pension systems, and 
housing. 

Progress  in  the  implementation  of  CSRs  adopted  in  2023  has  also  been  substantial. 
Member States have made at least “some progress” in almost  59% of the recommendations 
addressed  to  them  in  July  2023  (Figure  2).  Considering  the  policy  areas  under  which  a 
significant  number  of  Member  States  received  a  recommendation  in  2023,  overall  most 
progress  has  been  achieved  on  budgetary  framework  and  fiscal  governance,  followed  by 
business  environment,  energy  efficiency,  renewable  ener  gy,energy  infrastructure  and 
networks. By contrast, less progress has been made in addressing recommendations on taxation 
policy. 

The results of the 2024 CSR assessment, together with those of previous years, will be available 
on the Commission website. 

19 

 
 
 
APPENDIX 3 – EU-WIDE PROGRESS ON SDG IMPLEMENTATION 

innovation 

Over  the  five-year  period  assessed 
(49),  the  EU  has  made  significant 
progress 
reducing 
towards 
inequalities  (SDG  10),  ensuring 
decent  work and  economic growth 
(SDG  8)  and  reducing  poverty 
(SDG  1).  Good  progress  has  also 
been  achieved  in  relation  to  the 
goals  on  zero  hunger  (SDG  2), 
industry, 
and 
infrastructure (SDG 9), responsible 
consumption and production (SDG 
12),  life  below  water  (SDG  14), 
quality  education  (SDG  4)  and 
gender  equality  (SDG  5).  The  EU 
has  also  seen progress  towards the 
goals  on  peace,  justice  and  strong 
institutions  (SDG  16),  sustainable 
cities  and  communities  (SDG  11), 
partnerships for the goals (SDG 17) 
and climate action (SDG 13).   

Progress towards the goal on clean 
water  and  sanitation  (SDG  6)  was 
indicators 
limited,  with  several 
showing positive developments but others showing no progress or even movement away. For 
affordable and clean energy (SDG 7), a slight movement away from the goal was observed due 
to the negative impact on energy affordability of Russia’s war of aggression against Ukraine 
and the consequent energy crisis in the EU. Progress towards the goal on good health and well-
being (SDG 3) was disrupted by the setbacks of the COVID-19 pandemic that are now fully 
visible in  the available data. The goal  on life on  land (SDG 15) is  characterised by several 
unsustainable trends in the areas of biodiversity and land degradation, leading to a moderately 
unfavourable assessment of the EU’s progress in this area over the short-term period assessed. 
The European Commission has proposed important policy initiatives to reverse the degradation 
of ecosystems as part of the European Green Deal, such as the EU Biodiversity Strategy, the 
EU Forest Strategy, the EU Soil Strategy for 2030 and the Farm to Fork strategy.   

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

20 

 
 
 
 
 
 
 
APPENDIX  4  –  FINDINGS  OF  IN-DEPTH  REVIEWS  OF  MACROECONOMIC 
IMBALANCES IN MEMBER STATES 

Imbalances or excessive imbalances have been identified in 9 out of the 12 Member States 
for which an in-depth review was carried out. The in-depth review (IDR) analysis looked at 
the  gravity  of  the  imbalances,  their  recent  and  prospective  evolution  and  related  policy 
responses.  This  year,  the  IDRs  analysis  has  been  presented  in  advance  of  the  European 
Semester  Spring  Package  to  allow  for  more  in-depth  multilateral  discussions  with  Member 
States ahead of the conclusions on the findings of imbalances and the subsequent formulation 
of the country-specific recommendations (50). 

The  classifications  reflect  the  entry  into  force  of  the  new  economic  governance 
framework,  by  clarifying  the  respective  roles  of  the  MIP  and  the  SGP  in  overall 
macroeconomic  surveillance,  notably  when  assessing  fiscal  sustainability  risks.  Where 
risks  are  essentially  rooted  in  fiscal  sustainability  concerns  and  where  the  required  policy 
responses are largely in the fiscal policy domain, the Stability and Growth Pact (SGP) should 
be seen as the appropriate vehicle for surveillance and  for issuing policy recommendations. 
Where  there  are  wider  macroeconomic  risks  in  addition  to  fiscal  sustainability,  including 
possible  spillovers,  that  require  a  broader  policy  response,  the  Macroeconomic  Imbalance 
Procedure  (MIP)  should  continue  to  complement  surveillance  under  the  SGP.  Where 
vulnerabilities are not rooted in high debt or fiscal laxity, the MIP will be the main mean for 
ensuring a strong enough surveillance mechanism.  

The evolution of vulnerabilities has been diverse across Member States but in many cases 
vulnerabilities  have  receded,  as  economic  conditions  adjusted  to  high  –  but  falling  – 
inflation.  This  year’s  assessment  of  imbalances  took  place  against  a  backdrop  of  weak 
momentum  last  year  and  prospects  of  a  gradual  acceleration  in  growth  this  year.  Inflation 
pressures  have  receded,  in  part  due  a  significant  reduction  in  energy  prices,  which  helped 
external  positions,  but  cost  and  price  pressures  are  still  relevant.  At  the  same  time,  the 
tightening  of  financial  conditions  over  the  past  two  years  increases  risks.  In  parallel,  the 
evolution of vulnerabilities has been also affected by the different degrees of policy action. The 
impact of these economic developments may have not unwound fully, requiring a continued 
close  monitoring  of  imbalances  with  the  forward-looking  perspective  being  important.  The 
paragraphs below elaborate on the most relevant vulnerabilities and prospects at this juncture. 

Cost  and  price  competitiveness  pressures  are  easing  but  divergent  dynamics  across 
countries are still an issue. Headline inflation has clearly come down in all EU countries – 
with  falling  energy  prices  playing  a  key  role  –  although  disinflation  has  been  broader  as 
indicated  by  significant  falls  in  core  inflation  since  early  2023.  Inflation  divergence  has 
declined  across  the  euro  area  and  the  EU,  but  not  uniformly  so.  Different  speeds  of  pass-
through of lower energy to other goods and services and different timings in the phase-out of 
measures  that  had  been  taken  to  contain  energy  prices  in  2022,  play  a  role  in  differential 
reductions in inflation. Domestic inflationary pressures have remained  significant, with unit 
labour costs and profit margins edging up further. Unit labour costs accelerated in 2023 driven 

(50) The 12 IDRs were published in two batches, one in March (for Cyprus, the Netherlands, Romania, Slovakia, 
Spain, Sweden), another one in April (for France, Germany, Greece, Hungary, Italy, Portugal): In-depth reviews 
- European Commission (europa.eu). 

21 

 
 
 
by high wage growth amid unemployment at historical low levels and against sluggish labour 
productivity  in  times  of  weak  growth.  Conversely,  nominal  exchange  rate  appreciation 
including for most non-euro area countries may have dampened some inflationary pressures.  

While expected to ease further, cost and price pressures remain an issue. Prospects are for 
a further slowdown of cost pressures, including unit labour costs as wage growth is expected 
to subside and productivity to edge up with the economic cycle. However, inflation is still high 
across much of the euro area and the EU. Disinflation may progress more slowly than expected 
if  pressures  coming  from  wages  and  profits  dynamics  remain  strong  for  long.  Lasting 
divergences in costs and prices developments that are not rooted in increased productivity can 
entrench competitiveness losses, with risks for the external positions and the effectiveness of 
the monetary stance. Addressing this requires policy action, including using fiscal policy to 
rein in demand to more sustainable levels, and efforts to improve markets functioning.  

Current accounts strengthened with lower energy prices, but the continuation of large 
current  account  deficits  and  surpluses  highlight  concerns  around  domestic  demand 
dynamics. External positions across the EU have benefited from the reduction of energy import 
prices from their highs of 2022. At the same time, some countries benefited from further strong 
growth in tourism exports, whereas others’ trade balances were affected by weakness in world 
trade, especially of manufacturing goods and in particular of extra-EU trade. Overall, beyond 
the energy balance, developments in external positions were diverse, depending in part on the 
strength of domestic demand. In some cases, dynamic consumption and investment led to the 
protraction  of  large  current  account  deficits;  in  other  cases,  sluggish  domestic  demand 
contributed to the persistence of large surpluses.  

Going forward, changes in the current accounts are expected to be more muted than in 
recent  years  but  in  many  cases  should  show  small  increases.  The  expected  changes  are 
driven by limited variations of terms of trade as well as prospects of some acceleration in global 
trade, together with limited changes in domestic demand. Most of the large current account 
deficits are expected to narrow only mildly. Moreover, those deficits tend to be weaker than 
fundamentals and worse than their pre-pandemic levels. Most other cases are expected to be 
edged up further, including long-lasting large current account surpluses, which are set to remain 
well below the levels seen before 2022, however.  

Most  of  the  negative  net  international  investment  positions  improved  further  in  2023 
supported by nominal GDP growth. Some of the more negative positions improved despite 
large current accounts deficits. However, some of those more negative NIIP-to-GDP ratios may 
not improve further this year or next, and in other cases not as much as recently, reflecting 
lower nominal GDP growth and the persistence of large external borrowing needs. 

House  prices  have  moderated  or  fallen  in  some  cases,  leading  to  a  reduction  in  the 
overvaluation  of  the  housing  markets.  Housing  markets  cooled  further  in  2023  against  a 
backdrop  of  tighter  financing  conditions  and  household  incomes  under  pressure;  these  two 
affects  reduced  households’  borrowing  capacity  and  dampened  housing  demand.  The 
correction  of  house  prices  has  been  more  pronounced  in  countries  where  prices  were  more 
overvalued and households more indebted. In those cases, the degree of overvaluation of the 
housing  markets  fell  –  although  house  prices  typically  remain  overvalued  –  and  price-to-

22 

 
 
income ratios reduced. On the contrary, in a few cases house prices continued growing strongly, 
sometimes continuing the dynamism of earlier years, in others being more novel. Commercial 
real estate prices have been correcting too but remain an issue in some countries. 

House prices dynamics should remain moderate as financial conditions remain tight but 
over  time  prices  may  grow  again  as  borrowing  capacity  recovers  and  supply  remains 
constrained. The period of house price falls may be ending but the short-term outlook is still 
marked by tight financing conditions dampening demand and prices. However, those factors 
may reverse as interest rates lower and household incomes edge up with real wage growth. At 
the same time, the recent falls in new housing starts and in building permits in several countries 
suggests that housing undersupply may be worsening rather than improving, which will tend 
to add upward pressures on prices. In parallel, policy aspects continue to push for debt-financed 
home  ownership  in  various  countries,  including  taxation  features  and  dysfunctional  rental 
markets,  which  may  feed  price  rises  once  financing  conditions  get  sufficiently  attractive. 
Concerns  around  commercial  real  estate  have  not  vanished  yet  and  the  sector  remains 
particularly sensitive to funding conditions.  

Large private and government debt ratios have continued declining on account of high 
nominal GDP growth and lower borrowing, but are still significant in several cases. Debt-
to-GDP  ratios  have  been  falling  visibly  since  2021  largely  driven  by  higher  nominal  GDP 
growth, yet that impact tended already to weaken in 2023 as GDP growth slowed down in real 
terms.  In  addition,  credit  flows  weakened  visibly  for  both  households  and  non-financial 
corporations  on  account  of  tighter  financing  conditions,  with  those  flows  even  becoming 
slightly negative in some cases, helping deleveraging. Nonetheless, private debts remain high 
in several cases. As for government debt, in a number of countries significant fiscal deficits 
added to the debt ratios, which are still above pre-COVID-19 crisis levels and are set to increase 
in the absence of further policy measures in some countries with high debts.  

Debt deleveraging should continue but in a diminishing way as inflation recedes further 
while financial conditions may still pose risks for debtors. Lower inflation is paving the way 
for lower interest rates, but financing conditions may remain challenging for some debtors and 
borrowers. Moreover, whereas interest rates are expected to fall, they are likely to remain above 
the lows recorded in the years leading up to the increase in inflation putting pressure on debt 
service costs. This is more of a concern where re-financing needs are higher. In addition, where 
borrowing in foreign currencies is significant, risks may compound with vulnerabilities in the 
external position that may spill into exchange rate volatility and higher risk premia, which calls 
for  prudent  policies.  Strengthening  potential  economic  growth,  including  by  effectively 
implementing the RRPs, should support debt deleveraging over the medium term. 

The banking sector has shown resilience to the weak economic momentum, but the full 
effects of the tighter financing conditions may have not yet completely played out.  The 
banking sector has withstood the latest macroeconomic developments well. Banks’ profitability 
has increased with higher interest income, which helped further strengthen their capital ratios. 
Weak economic growth and tighter financing conditions do not seem to have impacted banks’ 
assets so far. Non-performing loans (NPLs) have continued to fall even if only marginally. In 
some countries, the workout of NPLs held outside the banking sector is still an issue. In some 
cases, the significant exposure to domestic sovereign debt remains a risk. Going forward, the 

23 

 
 
full effects of the tightening of monetary conditions of the past two years on debt service may 
still not have been seen in full and may develop in a lagged way. In the current context, the 
situation of the commercial real estate sector may call for attention as banks and other financial 
institutions in some countries have large exposures to the sector. 

Table 1: MEMBER STATES CLASSIFICATION UNDER THE MIP  

2023 outcomes 

2024 outcomes 

No imbalances 

CZ, EE, LV, LT, LU, SK 

ES, FR, PT 

Imbalances 

Excessive 
imbalances 

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

CY, DE, EL, HU, IT, NL, SK, SE 

EL, IT 

RO 

p.m.: No IDR 

AT, BE, BG, DK, HR, FI, MT, PL, 
SI 

AT, BE, BG, CZ, DK, EE, HR, FI, IE, 
LV, LT, LU, MT, PL, SI 

Note: Member States with classification changed between 2023 and 2024 are marked in bold 
in both columns. 

Member States no longer experiencing imbalances  

France  is  found  to  no  longer  experience  imbalances.  Policy  action  has  helped  in  reducing 
vulnerabilities, which had cross-border relevance, related to competitiveness in a context of 
low  productivity  growth,  but  efforts  need  to  continue,  while  vulnerabilities  related  to  high 
public remain. Price competitiveness has evolved favourably since 2021, in part due to lower 
inflation than in trading  partners. However, cost  competitiveness outcomes have been more 
mixed as labour productivity has been reined in by temporary factors in the aftermath of the 
COVID-19 crisis, including persistent labour hoarding in some key sectors, and policies aimed 
at increasing employment. These have resulted in robust employment growth in recent years. 
Labour productivity and competitiveness are expected to improve going forward, helped by 
planned investments and reforms, which should underpin debt deleveraging. Private sector debt 
increased  markedly  during  the  pandemic,  but  was  accompanied  by  a  rise  in  the  household 
saving rate, and by increases in equity and the accumulation of liquidity buffers in firms, which 
are  now  being  used.  Credit  for  corporate  investment  remains  dynamic  despite  the  tighter 
financial conditions. Public debt-to-GDP has edged down somewhat with the recovery in GDP 
since 2021, to just over 110% in 2023. It is projected to remain broadly stable in 2024 but to 
increase again in 2025 amid continued large government deficits. The policy response to the 
identified vulnerabilities related to competitiveness in a context of low productivity growth has 
been broadly appropriate and should support productivity growth in coming years, but efforts 
need  to  continue.  The  implementation  of  the  RRP  will  help  to  further  address  the 

24 

 
 
 
  
 
competitiveness challenges while improving productivity growth. While policy action has been 
taken to strengthen public finances, more efforts are clearly needed to reduce the high public 
debt.  The  reformed  Stability  and  Growth  Pact,  including  the  application  of  the  Excessive 
Deficit Procedure, offers a suitable and strong surveillance mechanism to  address  the fiscal 
sustainability risks. 

Portugal is found to no longer experience imbalances. Significant progress has been made in 
reducing  vulnerabilities  related  to  high  private,  government  and  external  debt,  which  are 
expected to continue to recede. After an interruption brought about by the COVID-19 pandemic 
crisis,  private  sector  and  government  debt  ratios  resumed  their  decline.  They  have  receded 
substantially since 2021, helped by strong GDP growth and a recent budget surplus in the case 
of government debt. The clearly negative NIIP has been improving substantially, helped by 
marked economic growth and a current account surplus, and its structure remains favourable 
in light of the high share of non-defaultable instruments. Private and government indebtedness 
and the NIIP remain elevated, but are projected to further recede in the future, despite nominal 
GDP growth becoming less supportive. The current account returned to a surplus last year and 
is forecast to remain positive this year and next, and a fiscal surplus has been attained. The 
increase in interest rates has put some pressure on indebted households and house prices have 
been  growing  strongly  for  several  years.  NPLs  have  continued  to  decline  from  already 
moderate levels. Sustained policy progress to address the identified vulnerabilities has  been 
made and underpins the visible results. The ongoing implementation of the RRP is expected to 
continue  having  a  favourable  impact  on  the  growth  potential,  contributing  to  Portugal’s 
external sustainability and helping fiscal sustainability.  

Spain  is  found  to  no  longer  experience  imbalances.  Significant  progress  has  been  made  in 
reducing  vulnerabilities,  which  had  cross-border  relevance,  related  to  high  private  and 
external debt, and there have been reductions in government debt. After an interruption brought 
about by the COVID-19 pandemic, private sector debt and the negative NIIP ratios resumed 
their decline in 2021, helped by strong nominal GDP growth. Both are expected to continue 
improving in the coming years, albeit more gradually than recently as nominal GDP growth is 
expected  to  be  less  supportive.  The  current  account  has  been  in  surplus  for  a  decade  and 
increased further in 2023 reflecting fast-growing exports as well as lower energy prices. The 
high government debt-to-GDP ratio has been declining, driven by strong nominal GDP growth, 
but more muted improvements are expected this year and next reflecting still significant fiscal 
deficits and the less supportive nominal GDP growth. The unemployment rate has been on a 
downward  trend  for  a  decade  and  is  forecast  to  continue  falling.  The  banking  sector  has 
remained  resilient  amidst  tighter  financing  conditions  for  borrowers.  Significant  policy 
progress has been achieved to address the identified vulnerabilities, including in recent years 
thanks to the implementation of the RRP, but more effort is needed especially to reduce the 
high government debt.  

Member States newly found to be experiencing imbalances  

Slovakia  is  found  to  be  experiencing  imbalances.  Despite  some  recent  improvements,  the 
vulnerabilities  related  to  cost  competitiveness,  external  balance,  housing  market  and 
household debt persist, and policy action has not been forthcoming. Slovakia was subject to an 
IDR  in  2023,  and  its  vulnerabilities  were  assessed  as  not  amounting  to  macroeconomic 

25 

 
 
imbalances as they were expected to ease over the medium term. These vulnerabilities have 
eased, but not as quickly as expected one year ago. The improvements moreover appear to be 
cyclical, with structural vulnerabilities appearing to be entrenched, while policy action has been 
lacking. The large current account deficit improved last year, but it is expected to remain visibly 
negative, leading to the persistence of the significantly negative NIIP. Core inflation has proven 
stickier than expected and has remained higher than the euro area average, while unit labour 
costs continue growing more than in most trading partners. These price and cost pressures are 
not expected to dissipate markedly this year or next, potentially hampering improvements in 
competitiveness and the trade balance. Household borrowing has been rising significantly over 
the years and decelerated in 2023 amid a drop in mortgage credit. House prices have fallen but 
are  still  somewhat  overvalued  and  are  expected  to  rise  again  as  housing  supply  remains 
constrained. Housing demand is supported by policy interventions such as the recently adopted 
mortgage allowances that hamper monetary policy transmission and are fiscally costly. Fiscal 
adjustment has been delayed, and the high government deficit is forecast to worsen this year, 
while  the  government  debt-to-GDP  ratio  is  expected  to  edge  up  in  2024  and  2025  despite 
supportive GDP growth, which puts upward pressure on the domestic demand. Overall, policy 
action  has  not  been  sufficient  to  address  the  identified  vulnerabilities,  contributing  to  their 
entrenchment. Fiscal adjustment would contribute to reducing core inflation and strengthening 
the external position as well as containing rises in government debt; the launch of the Excessive 
Deficit Procedure should underpin such an adjustment. Action is also needed to improve price 
and non-price competitiveness and to reduce risks related to the housing market and household 
debt accumulation, including by developing a functioning rental market.  

Member States experiencing imbalances  

Cyprus continues to experience imbalances. Vulnerabilities related to private, government and 
external debt have overall receded but remain relevant, while the large current account deficit 
has  widened  further.  Both  household  and  non-financial  corporate  debt-to-GDP  ratios  have 
continued to decline, while remaining high. However, corporate and external debt is inflated 
by the debt of special purpose entities, which pose limited risks to the domestic economy. The 
large stock of non-performing loans held by banks has declined significantly in recent years, 
including in 2023, and NPLs resolution by credit acquiring companies is expected to support 
further  private  debt  reduction.  Nonetheless,  the  tighter  financial  conditions  are  likely  to 
increase pressure on highly indebted households and companies. The government debt-to-GDP 
ratio is decreasing rapidly, and Cyprus is forecast to sustain budgetary surpluses this year and 
next,  which will drive further reductions in  the debt  ratio. The large current  account  deficit 
widened  further  in  2023  much  due  to  the  continued  robust  domestic  demand  and  the 
repatriation of profits. It is expected to remain large this year and next. The highly negative 
NIIP did not improve last year and is set to deteriorate unless the current account improves 
markedly. Extensive policy efforts have been made to address the identified vulnerabilities. 
The full and timely implementation of RRP and further measures are expected to help expand 
exports and alleviate the over-reliance on oil imports. 

Germany  continues  to  experience  imbalances.  Vulnerabilities  related  to  the  large  current 
account surplus remain relevant, despite some reduction over the years, as the underlying issue 
of weak domestic demand and subdued investment, which has cross-border relevance, persists 
while the policy response has been limited. With lower energy prices, weak domestic demand 

26 

 
 
and sluggish world trade, the current account surplus bounced back to 5.9% of GDP in 2023 
from 4.2% of GDP in 2022. It is forecast to edge up somewhat more this year and next while 
remaining well below its pre-pandemic levels. Given the size of the German economy and its 
trade integration in the euro area, this has negative spillovers on the rest of the area. Falling 
house prices have considerably  reduced the extent of the house prices overvaluation, with a 
limited impact on the financial system so far, but commercial real estate continues to require 
monitoring. Declining housing investment may lead to the re-emergence of price pressures and 
subsequent risks of overvaluation in the near future. Going forward, a mild deterioration of cost 
competitiveness is expected, and households are beginning to regain some purchasing power 
as wages are forecast to grow in real terms. The recovery of private investment is taking time 
and fiscal consolidation is expected to weigh on domestic demand, and potentially strain public 
investment. The overall underlying vulnerabilities in terms of a significant savings-investment 
gap have not changed fundamentally: investment needs have been increasing over the years, 
mainly linked to public investment at regional level and corporate investment in general, which 
would support economic growth in the future. Whereas the government has taken some action 
to support investment, and the RRP includes important measures to promote investment, the 
size of the policy response has not so far led to substantial progress nor been sufficient to meet 
the overall challenge of higher private and public investment. 

Hungary continues to experience imbalances. Vulnerabilities related to price pressures and 
external  and  government  financing  needs  remain  relevant,  although  an  improving  external 
environment has mitigated some short-term risks. The large current account deficit closed in 
2023 as domestic demand shrunk amid a recession in Hungary, and due to lower energy prices. 
Together with tighter monetary policy, these factors helped reduce the very high inflation rate. 
Nevertheless, core inflation has remained among the highest in the EU, and unit labour costs 
have continued to grow strongly, exerting pressure on competitiveness. The current account is 
expected to revert to a small deficit as domestic demand recovers, while the economy, and its 
external financing, remain exposed to developments in energy prices and risk premia. House 
prices slowed down and overvaluation eased in 2023 against the backdrop of higher interest 
rates.  The  large  budget  deficit  persists  on  account  of  expansionary  policies  and  weakening 
growth since the recession in 2023. The deficit is forecast to narrow somewhat, but to remain 
significant  and  contributing  to  inflation  and  adding  to  external  borrowing  needs.  The 
government debt-to-GDP and the interest burden are set to remain elevated. Policy progress 
has  been  limited  across  all  areas,  particularly  fiscal  and  structural  ones,  contributing  to  the 
persistence  of  the  identified  vulnerabilities.  Fiscal  adjustment  would  contribute  to  reducing 
core inflation and strengthening the external position as well as containing rises in government 
debt; the launch of an Excessive Deficit Procedure should underpin such an adjustment. Timely 
and  effective  implementation  of  the  RRP  is  expected  to  help  reduce  vulnerabilities,  which 
would be reinforced by the phasing out of distortive interventions in markets and by reforms 
that support fiscal consolidation. 

The Netherlands continues to experience imbalances. Vulnerabilities related to high private 
debt in a context of an overvalued housing market, which have cross-border relevance, remain 
relevant despite some improvements. Vulnerabilities associated with the large current account 
surplus have been mitigated through the relatively strong domestic demand growth. The large 
current  account  surplus  has  been,  and  is  expected  to  remain,  elevated  on  the  back  of  a 
substantial surplus in goods and services trade, which reflects a surplus of domestic savings 

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over investment for the economy as a whole. However, domestic demand has been growing 
more robustly than in the euro area in recent years, which suggests that the spillovers of the 
current account surplus to the rest of the area are becoming less of a concern. The significant 
presence  of  multi-national  enterprises  in  the  Netherlands,  the  statistical  impact  of  retained 
corporate earnings, and the role of pension funds accumulating large savings that are invested 
abroad  are  all  features  that  contribute  to  the  large  savings-investment  gap.  Private  debt 
continued  declining  considerably  in  2023,  and  further  reductions  can  be  expected,  but  debt 
remains high. The high level of debt coupled with large holdings of illiquid assets, principally 
housing and pension savings, makes households vulnerable to changing economic conditions, 
especially given the overvalued housing market. House prices showed some correction for most 
of last year against a backdrop of tighter financing conditions but remain overvalued even if 
less than before. Some measures have been taken to address the identified vulnerabilities, but 
policy progress further efforts are needed. Several options could be pursued to tackle housing 
shortages more forcefully by means of higher housing investment and removing obstacles to 
the construction of new dwellings, while further addressing tax incentives for debt-financed 
homeownership. Recent reforms in the private rental market are unlikely to be conducive to 
housing availability.  

Sweden continues to experience imbalances. Vulnerabilities related to its real estate market 
and  high  private  debt  remain  relevant  despite  some  recent  correction,  and  policy  action  to 
tackle them has been limited. After significant increases for several years, real  estate prices 
have been declining since late 2022. Private sector debt declined relative to GDP because of 
the high nominal GDP growth, on account of the high inflation, while debt levels still increased 
in nominal terms. The rapid increase in interest rates has negatively impacted the debt service 
of households and of commercial real estate companies, reduced demand, and affected property 
prices. The prevalence of variable interest rates and of mortgages with very long durations, has 
put pressure on household balance sheets, reducing repayment capacity and triggering a fall in 
consumption and contributing to  the recession of 2023. At the same time, the new housing 
construction dropped sharply. Despite recent falls, house prices continue to still be significantly 
overvalued; commercial real estate prices also appear not to have adjusted fully yet and there 
are risks for debt servicing if interest rates remain high and valuations decline. The financial 
sector is highly exposed to the real estate sector, but its strong metrics should serve as a bulwark 
against the propagation of real estate problems to the wider economy. Policy progress has been 
limited, and in the absence of firmer action, the identified vulnerabilities will persist and may 
lead to a re-surge in debt-financed housing acquisition and house price overvaluation. Measures 
that  increase  housing  supply  could  go  a  long  way  in  preventing  these  issues.  In  addition, 
taxation  continues  to  promote  debt-financed  housing  acquisition  through  the  significant  tax 
deductibility of mortgage interest payments and to favour homeownership. The rental market 
has not been reformed.  

Member States now found to be experiencing imbalances (excessive imbalances before) 

Greece is experiencing imbalances after being identified with excessive imbalances in 2023. 
Vulnerabilities related to high government debt and high non-performing loans in the context 
of high unemployment remain relevant but have receded markedly and are expected to recede 
further,  but  the  external  position  remains  weak.  The  government  debt-to-GDP  ratio  has 
continued to decline, and while it remains high at almost 162% in 2023, the short-term risks to 

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debt sustainability appear low. Nominal GDP growth was a major driver of the rapidly falling 
debt  ratio  in  recent  years,  but  the  expected  further  improvement  in  fiscal  balances  is  set  to 
ensure that it continues to decline. The current account deficit, which had widened markedly 
over the years 2020 to 2022, narrowed significantly in 2023, but remains elevated against a 
backdrop of buoyant domestic demand. Only marginal improvements of the current account 
are expected this year and next, as the robust growth in investment is forecast to keep imports 
elevated. The deeply negative NIIP-to-GDP ratio also improved last year on the back of the 
high nominal GDP growth, but it remains the weakest in the EU. NPLs have shown a strong 
reduction in recent years and continued to decline in 2023, but the workout of the NPLs outside 
of the banking sector remains slow, and as a result they continue to weigh on the economy. 
Employment increased and unemployment declined further but is still relatively high. Years of 
sustained policy action and extensive structural reforms have clearly favoured a reduction of 
the  identified  vulnerabilities.  Maintaining  the  prudent  fiscal  stance  and  continued  timely 
implementation  of  the  RRP  remain  crucial  to  improve  competitiveness  and  ensure  the 
rebalancing of the economy, including on the external position.  

Italy  is  experiencing  imbalances  after  having  been  identified  with  excessive  imbalances  in 
2023.  Vulnerabilities  related  to  high  government  debt  and  weak  productivity  growth  in  a 
context of labour market fragilities and some residual weaknesses in the financial sector, which 
have cross-border relevance, remain. Italy’s public debt-to-GDP ratio markedly declined since 
its peak during the COVID-19 pandemic crisis, principally due to strong nominal GDP growth. 
However, the public debt ratio is still high, at over 137% of GDP in 2023, and the downward 
trend  is  projected  to  reverse  this  year  and  next.  This  reversal  is  attributed  to  a  large  debt-
increasing  stock-flow  adjustment,  still  sizeable,  though  decreasing,  government  deficits,  as 
well  as  lower  nominal  GDP  growth.  Productivity  growth  has  overall  and  on  average  been 
positive but limited, which confirms the need of reforms and investment to overcome structural 
shortcomings  and  to  foster  favourable  conditions  to  productivity  growth.  Labour  market 
conditions have improved in recent years and did not translate into wage pressures. Labour 
participation  rates have risen to  record levels  though these  are still comparatively  low. The 
financial  sector  has  further  strengthened  with  improvements  in  bank  asset  quality  and 
profitability, while Italian banks are still considerably exposed to the sovereign and to state-
guaranteed  loans  in  their  balance  sheets.  Policy  action  has  been  favourable  to  tackle  the 
vulnerabilities,  including  through  the  RRP  implementation,  which  inter  alia  promote 
productivity and potential  GDP growth to  help  reduce the public debt  ratio over the longer 
term.  Keeping  up  the  pace  of  RRP  implementation  remains  essential  and  additional  policy 
efforts would be beneficial. More action is clearly needed to reduce the high public debt ratio. 
The reformed  Stability  and Growth Pact, including the  application of the Excessive Deficit 
Procedure,  offers  a  suitable  and  strong  surveillance  mechanism  to  address  the  fiscal 
sustainability risks, and to complement surveillance under the MIP.  

Member States now found to be experiencing excessive imbalances (imbalances before) 

Romania identified with imbalances in 2023, is found to be experiencing excessive imbalances. 
Vulnerabilities related to external accounts, mainly linked to large and increasing government 
deficits, remain, while significant price and cost pressures have increased and policy action 
has been weak. The current account deficit improved somewhat in 2023, mostly due to weaker 
private consumption and gains in terms of trade, but it remains clearly large and is not forecast 

29 

 
 
to improve this year and next. As a result, the NIIP is no longer improving as a share of GDP 
despite the high nominal GDP growth and the continuation of large current account deficits 
risks driving it further into negative territory. Headline inflation has declined but core inflation 
remains very high, just marginally off its recent peak and higher than a year ago. Wages and 
labour cost dynamics accelerated in 2023 and continued to be strong in 2024, partly reflecting 
large minimum and public wage increases, against the backdrop of a tight labour market. This 
has resulted in cost competitiveness concerns, while non-cost competitiveness continues to be 
impaired by structural bottlenecks. All these factors add to concerns about the entrenchment of 
competitiveness  losses  and  delays  in  the  necessary  trade  balance  improvement.  The  fiscal 
situation, which is a main driver of the high current account deficit, has deteriorated over the 
past year. The large fiscal deficit is forecast to worsen somewhat further in 2024 and 2025. The 
government  debt-to-GDP  ratio  edged  up  despite  the  high  nominal  GDP  growth,  remains 
moderate at 53%, but with a large share of it denominated in foreign currency. The persistence 
of high government deficits may push up external indebtedness and make Romania more reliant 
on external financing sources, leaving the country vulnerable to changes in investor sentiment 
and  external  shocks.  The  policy  response  to  address  the  identified  vulnerabilities  has  been 
weak.  A  credible  fiscal  consolidation  path  is  key  to  dampen  risks  to  the  stability  of  the 
economy.  This  requires  compliance  with  recommendations  under  the  Excessive  Deficit 
Procedure  and  full  implementation  of  the  fiscal-structural  reforms  included  in  the  RRP,  in 
particular  those  aiming  at  structurally  increasing  government  revenue,  and  much  stricter 
spending control than in the past years. Implementation of RRP reforms and investment beyond 
the fiscal-structural ones would also enhance competitiveness.   

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