Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Germany
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Germany, budget policy, digital transformation, economic policy, economic recovery, economic reform, employment policy, green economy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 605 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Germany {SWD(2024) 600 final} - {SWD(2024) 605 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Germany 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3  ,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  

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2 
3 

OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj. 
OJ L 306, 23.11.2011, p. 25, ELI: http://data.europa.eu/eli/reg/2011/1176/oj. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17),  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj. 

the  Recovery  and  Resilience  Facility 

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(2) 

(3) 

(4) 

(5) 

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The  REPowerEU  Regulation4,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables, energy storage capacities and energy efficiency.  

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’5, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member  States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report6.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.   

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey7, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 Alert Mechanism Report, in which it identified Germany as one of 
the  Member  States  that  may  be  affected  or  may  be  at  risk  of  being  affected  by 
imbalances, and for which an in-depth review would be needed. On the same date, the 
Commission  adopted  an  opinion  on  the  2024  draft  budgetary  plan  of  Germany.  The 
Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on  the 
economic policy of the euro area, which the Council adopted on 12 April 2024, as well 
as the proposal  for the 2024 Joint Employment Report analysing the implementation 
of  the  Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social 
Rights, which the Council adopted on 11 March 2024.  

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States8.  The  objectives  of  the 
new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1), ELI: http://data.europa.eu/eli/reg/2023/435/oj. 
COM(2023) 168 final. 
COM(2024) 77 final. 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 
29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 

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through gradual  fiscal consolidation  as  well as  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure9 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) 2024/1263, including the requirements to put or keep 
general government debt on a plausibly downward path by the end of the adjustment 
period  at  the  latest,  or  for  it  to  remain  at  prudent  levels  below  60%  of  GDP,  and  to 
bring  and/or  maintain  the  government  deficit  below  the  3%  of  GDP  reference  value 
over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of  reforms 
and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, 
the  adjustment  period  may  be  extended  by  3  years  at  most.  For  the  purpose  of 
supporting the preparation of those plans, on [21 June] 2024, the Commission is set to 
provide Member States with guidance on the content of the plans and the subsequent 
annual progress reports that they will need to submit and, in accordance with Article 5 
of Regulation (EU) 2024/1263, will transmit to them technical guidance on the fiscal 
adjustments  (reference  trajectories  and  technical  information  where  applicable). 
Member  States  should  submit  their  medium-term  fiscal-structural  plans  by  20 
September  2024,  unless  the  Member  State  and  the  Commission  agree  to  extend  the 
deadline by a reasonable period of time. Member States should ensure the involvement 
of their national parliaments, and the consultation of independent fiscal institutions, of 
social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241. 

On 28 April 2021, Germany submitted its national recovery and resilience plan to the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 
recovery and resilience plan for Germany10, which was amended on 8 December 2023 

Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 
Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Germany (10158/21). 

(6) 

(7) 

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(8) 

(9) 

following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution  for  non-repayable  financial  support)11.  The  release  of  instalments  is 
conditional on a decision by the Commission, taken in accordance with Article 24(5) 
of  Regulation  (EU)  2021/241,  that  Germany  has  satisfactorily  fulfilled  the  relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not been reversed. 

On 17 April 2024, Germany submitted its 2024 National Reform Programme and, on 
24 April 2024, its 2024 Stability Programme,  in  line with  Article  4(1) of Regulation 
(EC)  No  1466/97.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the 
2024 National Reform Programme also reflects  Germany’s biannual reporting on the 
progress made in achieving its recovery and resilience plan.  
The Commission published the 2024 country report for Germany12 on 19 June 2024. It 
assessed  Germany’s  progress 
relevant  country-specific 
in  addressing 
recommendations  adopted by the Council  between 2019  and  2023 and  took stock of 
Germany’s implementation of the recovery and resilience plan. Based on this analysis, 
the  country  report  identified  gaps  with  respect  to  those  challenges  that  are  not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new and emerging challenges.  It  also  assessed  Germany’s progress  on implementing 
the  European  Pillar  of  Social  Rights  and  on  achieving  the  EU  headline  targets  on 
employment, skills and poverty reduction, as well as progress in  achieving the UN’s 
Sustainable Development Goals.  

the 

(10)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No 1176/2011 for Germany. The main findings of the Commission’s staff assessment 
of  macroeconomic  vulnerabilities  for  Germany  for  the  purposes  of  that  Regulation 
were  published  in  April  202413.  On  19  June  2024,  the  Commission  concluded  that 
Germany  is  experiencing  macroeconomic  imbalances.  In  particular,  Germany  faces 
vulnerabilities  related  to  the  large  current  account  surplus  which  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 
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 

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Council Implementing Decision of 8 December 2023 on the approval of the assessment of the recovery 
and resilience plan for Germany (15572/23). 
SWD(2024) 605 final. 
SWD(2024) 101 final. 

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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 Germany’s 
recovery and resilience plan 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. 

(11)  Based  on  data  validated  by  Eurostat14,  Germany’s  general  government  deficit 
remained  unchanged  at  2.5%  of  GDP  in  2023  compared  to  2022,  while  the  general 
government debt fell from 66.1% of GDP at the end of 2022 to  63.6% at the end of 
2023. 

(12)  On 12 July  2022, the Council recommended15 that Germany take action  to  ensure in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance16,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people fleeing  Ukraine.  Germany  was  recommended to  stand  ready to  adjust current 
spending to the evolving situation. Germany was also recommended to expand public 
investment  for  the  green  and  digital  transitions,  and  for  energy  security  taking  into 
account  the  REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and 
Resilience  Facility  and  other  Union  funds.  In  2023,  according  to  the  Commission 
estimates,  the  fiscal  stance17  was  contractionary,  by 0.3%  of  GDP.  The  growth  in 
nationally  financed  primary  current  expenditure  (net  of  discretionary  revenue 
measures) in 2023 provided a contractionary contribution to the fiscal stance of 0.5% 
of  GDP  and  was  in  line  with  the  Council  recommendation.  Expenditure  financed  by 
Recovery  and  Resilience  Facility  grants  and  other  EU  funds  amounted  to  0.2%  of 
GDP in 2023. Nationally financed investment amounted to 2.6% of GDP in 2023, with 
an annual increase of 0.1 percentage points from 2022. Germany financed additional 
investment  through  the  Recovery  and  Resilience  Facility  and  other  EU  funds. 
Germany  financed  public  investment  for  the  green  and  digital  transitions,  and  for 
energy  security,  such  as  energetic  renovation  of  buildings,  improvement  of  the 
charging  infrastructure  for  electric  cars  and  equipping  schools  for  the  digital  age, 
which are partly funded by the Recovery and Resilience Facility and other EU funds. 

(13)  The key projections in the 2024 Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP to grow by 0.2% in 2024 and 1.0% in 2025. The general government deficit  is 
expected  to  decrease  to  1¾%  of  GDP  in  2024  and  1%  of  GDP  in  2025,  while  the 

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Eurostat-Euro Indicators, 22.4.2024. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Germany  and 
delivering a Council opinion on the 2022 Stability Programme of Germany, OJ C 334, 1.9.2022, p. 35. 
Based on the Commission 2024 spring forecast, the medium-term potential output growth of Germany 
in 2023, which is used to measure the fiscal stance, is estimated at 7.5% in nominal terms, based on the 
10-year average real potential growth rate and the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds. 

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general  government  debt-to-GDP  ratio  is  set  to  increase  to  64%  by  the  end  of  2024 
and,  subsequently,  decrease  to  63¼%  by  the  end  of  2025.  After  2025,  the  general 
government deficit is projected to increase to 1¼% of GDP in 2026 and 1½% in 2027 
before  decreasing  to  1%  in  2028.  Therefore,  the  general  government  balance  is 
planned to remain below the 3% of GDP deficit reference value over the programme 
horizon. In turn, after 2025, the general government debt-to-GDP ratio is projected to 
decrease gradually to 63¼% in 2026, 63% in 2027, and 62% in 2028.  

(14)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  0.1%  in  2024 
and 1.0% in 2025, and HICP inflation to stand at 2.4% in 2024 and 2.0% in 2025. 

(15)  The Commission Spring 2024 Forecast projects a government deficit of 1.6% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to decrease to 62.9% 
by the end of 2024. The decrease of the deficit in 2024 mainly reflects the phase-out of 
energy-related emergency support measures with a similar impact on the debt-to-GDP 
ratio.  Based  on  the  Commission’s  estimates,  the  fiscal  stance  is  projected  to  be 
contractionary by 0.8% of GDP in 2024. 

(16)  Expenditure amounting to 0.1% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  the  same 
amount as  in  2023, according to  the Commission Spring 2024 Forecast.  Expenditure 
financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-quality 
investment and productivity-enhancing reforms without a direct impact on the general 
government balance and debt of Germany. 

(17)  On  14  July  2023,  the  Council  recommended18  that  Germany  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 
primary  expenditure19  in  2024  to  not  more  than  2.5%.  When  executing  their  2023 
budgets  and  preparing  their  Draft  Budgetary  Plans  for  2024,  Member  States  were 
invited  to  take  into  account  that  the  Commission  would  propose  to  the  Council  the 
opening of the deficit-based excessive deficit procedures based on the outturn data for 
2023. According to the Commission Spring 2024 Forecast, Germany’s net nationally 
financed primary expenditure is projected to increase by 2.6% in 2024, which is above 
the  recommended  maximum  growth  rate.  However,  the  projected  growth  rate  of  net 
expenditure  in  2024  included  in  the  Commission  forecast  is  impacted  by  a 
reclassification  of  public  transport  entities  into  the  general  government  sector  in  the 
course of 202320, which created a break in the time series. Without the impact of this 
reclassification,  net  nationally  financed  primary  expenditure  would  be  projected  to 
increase  by  2.4%  in  2024,  which  is  below  the  recommended  maximum  growth  rate. 
This is in line with what was recommended by the Council. 

(18)  Moreover,  the  Council  recommended  that  Germany  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Germany  should  ensure  that  these  were  targeted  at  protecting 

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Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Germany and 
delivering a Council opinion on the 2023 Stability Programme of Germany, OJ C 312, 1.9.2023, p. 38. 
Net primary expenditure is defined as nationally financed expenditure net of (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) one-offs and other 
temporary measures. 
The  impact  of  this  reclassification  is  captured  by  the  expenditure  growth  indicator  while  having  a 
negligible effect on the government deficit through a similar increase in revenues. 

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vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost21 of emergency energy support measures is estimated at 1.2% of GDP in 2023 and 
projected at  0.1% in  2024, and 0.0% in  2025. In  particular, the reduced value added 
tax rate on gas is assumed to remain in force in 2024, albeit with a minor impact. If the 
related  savings  were  used  to  reduce  the  government  deficit,  as  recommended  by  the 
Council, these projections would imply a fiscal adjustment of 1.1% of GDP in 2024, 
whereas  net  nationally  financed  primary  expenditure22  provides  a  contractionary 
contribution to the fiscal stance of 0.8% of GDP in that year. The  emergency energy 
support  measures  are  projected  to  be  wound  down  as  soon  as  possible  in  2023  and 
2024.  This  is  in  line  with  what  was  recommended  by  the  Council.  However,  the 
related  savings  are  not  projected  to  be  fully  used  to  reduce  the  government  deficit. 
This risks being not in line with the Council recommendation.  

In addition, the Council also recommended that Germany preserve nationally financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to increase to 2.7% of GDP in 2024, from 2.6% of GDP 
in  2023.  This  is  in  line with  what  was  recommended  by  the  Council.  In  turn,  public 
expenditure  financed  from  revenues  from  EU  funds,  including  Recovery  and 
Resilience Facility grants, is expected to remain stable at 0.2% of GDP in 2024. 

(19) 

(20)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit of 1.2% of GDP in 2025. The general government debt-to-GDP ratio is set to 
decrease to 62.2% by the end of 2025. The decrease of the deficit and of the debt-to-
GDP ratio in 2025 mainly reflect the expected rebound in GDP growth.  

(21) 

In  spite  of  a  slight  increase  of  public  investment  as  a  percentage  of  GDP  in  recent 
years, public investment has not kept pace with the investment needs in infrastructure, 
education, training, and the green and digital transitions. Federal level investment has 
fallen below depreciation levels in the past year, while net investment at the municipal 
level  has  been negative  for the last two decades, leading  to  an overall decline in  the 
capital  stock.  Obstacles  to  investment  persist.  Private  investment  in  2023  was  still 
below pre-pandemic levels. In particular, the administrative burden for the roll-out of 
private  investments  remains  high,  specifically  due  to  requirements  for  extensive 
documentation and licences as well as a lack of digitalisation.  Demanding regulatory 
standards,  regulatory  differences  across  regions  and  lengthy  permitting  procedures 
hinder the expansion of production and innovation capacities, especially in the energy 
and  construction  sectors.  Investment  in  residential  buildings  has  fallen  for  the  last 
three years, despite housing shortages. Alternative forms of financing, particularly for 
scale-ups,  are limited. Business enterprise spending on research and development  by 

21 

22 

The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 
This contribution is measured as the change in general government primary expenditure, net of  (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 

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small  and  medium-sized  enterprises  (SMEs)  remains  low  and  the  diffusion  of 
technology is limited.  

(22)  Ageing  is  reducing  the  working  age  population,  putting  upward  pressure  on  the  old-
age dependency ratio. As a result, overall pension expenditure is expected to increase. 
This  creates  a  significant  financing  need.  Over  the  years,  an  increasing  portion  of 
pension  expenditures  have  been  financed  through  federal  subsidies.  Since  2020,  this 
constituted  over  EUR  100  billion  yearly,  approximately  23%  of  the  total  federal 
expenditure. Under unchanged policies, this is expected to increase further, putting a 
strain on the scope for productive spending. Company pensions as well as the capital-
based  private  pension  schemes  have  remained  underused.  Despite  efforts  to  increase 
the  use  of  company  pensions  (second  pillar),  coverage  remains  at  about  54%.  The 
planned  building  up  of  ‘generation  capital’,  adding  a  capital-based  element  in  the 
statutory  pension  system,  will  be  financed  through  government  debt  and  therefore 
offers  limited  potential  for  improving  pension  sustainability.  While  the  employment 
rate of workers aged 55-64 is among the highest in the EU, the increase in the effective 
retirement age has slowed somewhat in recent years, and employment in the 65-and-
over age group lags behind those Member States with the highest employment rates. 
This  is  also  due  to  early  retirement  options,  adding  further  pressure  on  the 
sustainability of the pension system. 

(23)  An  optimal  tax  mix  is  key  for  more  inclusive  and  sustainable  growth  as  well  as 
stronger competitiveness. Workers in Germany face the second highest tax wedge in 
the EU. High taxes in conjunction with benefit rules reduce incentives to increase the 
number of hours worked, especially for low-wage and second earners, who are often 
women, as also indicated by the very high part-time share of employed women. This 
weighs  on  labour  supply  and  aggravates  existing  labour  shortages.  Furthermore, 
Germany’s share of environmental taxes is below the EU average and decreasing.  In 
contrast,  Germany  has  one  of  the  highest  corporate  income  tax  rates,  including  the 
local  trade  tax  (Gewerbesteuer)  in  the  EU.  Their  combination  forms  a  complex  and 
opaque tax system. Recent  initiatives to  review depreciation rules and enhancements 
of R&D tax credits are cost-effective ways of expanding investment incentives. At the 
same time, there is potential for simplifying the corporate taxation system by reducing 
the scope for exemptions. 

(24) 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the German recovery and resilience plan includes an extensive set of 
mutually reinforcing reforms and investments to be implemented by  2026. These are 
expected to help effectively address all or a significant subset of challenges identified 
in  the  relevant  country-specific  recommendations.  Within  this  tight  timeframe, 
proceeding  swiftly  with  the  effective  implementation  of  the  plan,  including  the 
REPowerEU  chapter  once  adopted,  is  essential  to  boost  Germany’s  long-term 
competitiveness  through  the  green  and  digital  transition,  while  ensuring  social 
fairness. To deliver on the commitments of the plan by August 2026, it is essential for 
Germany  to  significantly  accelerate  the  implementation  of  reforms  and  investments, 
including by allocating sufficient resources to its management. The rapid inclusion of 
a  REPowerEU  chapter  in  the  recovery  and  resilience  plan  will  allow  additional 
reforms  and  investments  to  be  financed  in  support  of  Germany’s  and  EU  strategic 
objectives in the field of energy and the green transition. The systematic involvement 
of  local  and  regional  authorities,  social  partners,  civil  society  and  other  relevant 
stakeholders  remains  essential  to  ensure  broad  ownership  for  the  successful 
implementation of the recovery and resilience plan. 

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(25)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Germany  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review  forms the basis  for the definitive allocation of the EU 
funding  included  in  each  programme.  Germany  has  made  progress  in  implementing 
cohesion  policy  and  the  European  Pillar  of  Social  Rights,  but  challenges  remain. 
Significant  regional  disparities  in  employment  and  labour  productivity  persist, 
although the less developed regions have gradually been catching up as regards labour 
productivity.  Accelerating  the  implementation  of  cohesion  policy  programmes  is 
crucial  and  the  priorities  agreed  in  the  programmes  remain  relevant.  As  part  of  the 
objective  of  enhancing  administrative  capacity,  it  is  important  to  allocate  sufficient 
resources  to  the implementation  of the cohesion policy programmes,  and to  promote 
the  modernisation  and  digitalisation  of  the  public  authorities  in  charge  of  their 
implementation.  Increasing  research,  development  and  innovation  in  all  regions, 
especially eastern regions, as well as supporting education and training to address the 
challenges  posed  by  the  green  and  digital  transitions  are  key  to  further  narrowing 
disparities  in  regional  competitiveness  and  employment.  This  also  requires  the 
implementation  of  cohesion  policy  for  the  green  and  digital  transition  to  continue  in 
regions  with  high-performing  sectors.  It  is  also  necessary  to  continue  green 
investments  in  energy  efficiency  and  renewable  energies,  climate  change  adaptation 
and  carbon  footprint.  Business  development  and  support  for  businesses,  particularly 
SMEs, remain pertinent. Quality and inclusiveness of education, training and lifelong 
learning,  particularly  for  disadvantaged  groups,  are  priorities,  as  are  active  inclusion 
and  improving  employability.  Germany  could  also  make  use  of  the  Strategic 
Technologies  for  Europe  Platform  initiative23  to  support  the  development  or 
manufacturing  of  critical  technologies  in  digital  technologies,  clean  and  resource 
efficient  technologies, and biotechnologies, as well as to  address  shortages of labour 
and skills in these sectors.  

(26)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan  and  other  EU  funds,  Germany  faces  several  additional  challenges  related  to 
addressing the high shortage of skilled workers, digitalisation and the green transition. 
Further  investments  in  the  twin  transition  would  also  help  narrow  the  investment-
savings gap.  

(27)  Shortages  of  skilled  labour  hamper  growth,  investment  and  the  twin  transition. 
Approximately  half  of  companies  in  Germany  struggle  to  fill  vacancies,  even  in  the 
long  term.  There  is  a  risk  that  skills  shortages  could  be  further  exacerbated  due  to 
deteriorating  education  outcomes,  especially  for  disadvantaged  groups,  a  significant 
number of early school leavers and weak basic digital skills. According to the OECD 
Programme for International Student Assessment (PISA), the share of underachievers 
almost  doubled over the last decade:  around 3 out  of 10 young  students in  Germany 
lack a minimum level of proficiency in mathematics, and 1 in 4 in reading and science. 
The  influence  of  socio-economic  and  migrant  backgrounds  on  education  outcomes 

23 

Regulation  (EU)  2024/795  of  the  European  Parliament  and  of  the  Council  of  29  February  2024 
establishing  the  Strategic  Technologies  for  Europe  Platform  (STEP),  and  amending  Directive 
2003/87/EC and Regulations (EU) 2021/1058, (EU) 2021/1056,  (EU) 2021/1057, (EU) No 1303/2013, 
(EU)  No  223/2014,  (EU)  2021/1060,  (EU)  2021/523,  (EU)  2021/695,  (EU)  2021/697  and  (EU) 
2021/241, OJ L, 2024/795, 29.2.2024, ELI: http://data.europa.eu/eli/reg/2024/795/oj. 

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increased further. Germany also has one of the highest shares of early school leavers in 
the EU and has particularly elevated numbers for foreign-born students. The new 10-
year  federal  programme  ‘Startchancen’  targeting  mainly  disadvantaged  students  is  a 
step in the right direction, but it only covers up to 10% of German schools. Proficiency 
in the German language is key for effective learning and inclusion, which underlines 
the importance of intensified German language support, particularly for students where 
languages  other than German are spoken  at  home. With 52.2% in  2023,  Germany is 
below  the  EU  average  of  55.6%  of  adults  with  at  least  basic  digital  skills,  and 
especially young people are lagging behind. There is a need to improve provision of 
basic skills and upskilling of people with lower-level qualifications and people with a 
migrant background with low labour market attainment in order to address shortages 
of  labour  especially  in  the  health  and  long-term  care  sector,  construction,  crafts  and 
services.  Skills  outcomes  could  be  improved  through  stepping  up  collaboration 
between employers and training institutions both within and across sectors, and further 
reliance  on  modular/short  cycle  qualifications.  Further  efforts  to  improve  education 
outcomes, in  particular  for  disadvantaged groups, and strengthening digital skills  are 
key to addressing the high shortage of skilled workers.  

(28)  While  Germany  has  made  efforts  to  improve  the  digitalisation  of  public  services, 
implementation remains slow, particularly in rolling out uniform, fully digital services 
across  municipalities  and  federal  states  (Länder).  Germany  did  not  reach  its  goal  of 
digitalising  all  administrative  services  for  the  public  and  businesses  by  its  national 
legal  deadline  (end-2022,  Online  Access  Act  (Onlinezugangsgesetz)).  The  National 
Regulatory Control Council (Normenkontrollrat) considers the implementation of the 
Online Access Act to be inadequate and has identified projected labour shortages as a 
key  risk  in  the  absence  of  efficiency  gains  through  digitalisation.  Coordination  and 
cooperation across all administrative levels is insufficient and ownership of delivering 
digitalised  processes  seems  limited.  The  Commission’s  eGovernment  Benchmark 
shows  that  the  country  is  also  underperforming  on  digitalising  the  back  office  of  its 
administration, which goes beyond the scope of the Online Access Act.  Modernising 
and connecting over 11 000 registers, beyond the first steps under Germany’s recovery 
and  resilience  plan,  is  a  key  enabler  of  digital  public  administration.  However,  little 
progress  has  been  made  to  date,  and  spending  for  digital  public  administration 
measures has been reduced. 

(29)  While  Germany  has  made  good  progress  in  deploying  fibre  broadband  (FTTP) 
connections,  the  country's  overall  coverage  (29.8%)  is  still  the  second  lowest  rate  in 
the  EU.  The  lack  of  fibre  (25.6%  coverage  of  households)  and  very  high-capacity 
network (37.6%) connections is particularly pronounced in rural areas. Coverage gaps 
have a negative impact on competitiveness and hamper productivity growth, especially 
for SMEs. Improving framework conditions for network deployment, for example by 
increasing  planning  and  implementation  capacity  in  the  public  sector,  is  crucial  to 
accelerate fibre coverage. Meeting the network targets will also require improvements 
to the administrative procedures involved in applying for and granting permits and the 
standardisation  of  alternative,  less  time-consuming  installation  methods.  Continued 
implementation of Germany’s Gigabit Strategy could remedy these issues and provide 
for  further  improvements.  However,  attention  could  be  paid  to  planning  public 
interventions  in  a  way  that  does  not  crowd  out  commercial  investments,  e.g.  by 
increasing demand for the scarce engineering resources. 

(30)  Reaching  climate  targets  requires  further  efforts  in  sectoral  decarbonisation  for  the 
transport sector. Transport has failed to reach annual national sector-specific emission 

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targets since their inception, including in 2023. Furthermore, cutting carbon emissions 
in road transport would substantially help achieve Germany's Effort Sharing Target to 
cut  emissions  by  50%  by  2030,  compared  to  2005  levels.  The  transport  sector 
increased its final energy consumption by 6.3% in 2023. Improving the reliability and 
quality  of  rail  operations  and  addressing  investment  gaps  and  delays  in  renovation, 
particularly  for  freight,  would  help  stimulate  demand  for  public  transport  and  ease 
road congestion. Creating sufficient capacity on the rail network to accommodate new 
traffic will require substantial investment.  

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
recommendation  on 
the  euro  area.  For  Germany, 
recommendations  (1),  (2)  and  (3)  help  implement  the  first,  second,  third  and  fourth 
euro area recommendations. 

the  economic  policy  of 

In  light  of  the  Commission’s  in-depth  review  and  its  conclusion  on  the  existence  of 
imbalances,  recommendations under Article 6 of Regulation  (EU) No 1176/2011  are 
reflected  in  recommendation  (1)  below.  Policies  referred  to  in  recommendation  (1) 
help  to  address  vulnerabilities  linked  to  the  persistent  large  current  account  surplus. 
Recommendations (2), (3) and (4) contribute to addressing recommendation (1) in as 
much  as  higher  investment  is  concerned.  Policies  referred  to  in  recommendation  (1) 
contribute  to  both  addressing  imbalances  and  implementing  the  recommendation  for 
the euro area, in line with recital 31. 

(31) 

(32) 

HEREBY RECOMMENDS that Germany take action in 2024 and 2025 to:  

1. 

2. 

24 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure24 in 2025 to a rate consistent with putting the general government  debt 
on  a  plausibly  downward  trajectory  over  the  medium  term  and  maintaining  the 
general government deficit below the 3% of GDP Treaty reference value. Strengthen 
public 
to  boost 
competitiveness.  Enhance  the  fiscal  space  for  productive  spending  including  by 
reforming the financing side of the first pillar pension system. Improve the tax mix 
for  more  inclusive  growth  and  sustainable  competitiveness,  also  by  reducing 
disincentives to increase hours worked, in particular for second earners.  

remove  obstacles 

investment  and 

to  private 

investment 

Significantly  accelerate  the  implementation  of  the  recovery  and  resilience  plan, 
including the REPowerEU chapter once adopted, ensuring completion of reforms and 
investments  by  August  2026,  and  speed  up  the  implementation  of  cohesion  policy 
programmes,  including  by  allocating  sufficient  resources  to  the  management  of  the 
recovery and resilience plan and cohesion policy programmes.  In the context of the 
mid-term  review  of  cohesion  policy  programmes  continue  focusing  on  the  agreed 
priorities, while considering the opportunities provided by the Strategic Technologies 
for Europe Platform initiative to improve competitiveness. 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘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. 

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3. 

Address  the  shortage  of  skilled  workers,  particularly  by  strengthening  basic  and 
digital  skills,  and  improving  education  outcomes,  including  by  providing  targeted 
support to disadvantaged groups. Speed up the digitalisation of public administration 
including  by  increasing  the  geographic  coverage  of  digital  public  services.  Further 
boost  the  deployment  of  very  high-capacity  digital  communication  networks, 
including by facilitating the necessary implementation of private investment projects 
and mobilising public resources where needed.  

4. 

Accelerate the decarbonisation of the transport sector, including by upgrading the rail 
network.  

Done at Brussels, 

For the Council 
The President 

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