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 2025 European Semester - Spring package
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: European Semester, administrative formalities, competitiveness, economic policy, innovation, investment, labour market, macroeconomics, reduction of gas emissions, single market

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 200 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 2025 European Semester - Spring package            
 
 
1.  INTRODUCTION  

While the EU economy is expected to expand in the coming years, the volatile trade and 
security situation put a drag on growth. Europe’s economy is set for a moderate expansion 
over the coming years, thus providing a favourable environment for businesses to invest and 
create jobs. The volatile international trade and security situation, however, weigh on the EU’s 
trade performance and on economic growth.  

Policies  to  strengthen  competitiveness  are  key  to  give  the  EU  economy  a  boost  and 
promote  sustainable  prosperity.  The  Competitiveness  Compass  for  the  EU 1 sets  out  the 
priorities and actions guiding the work of the Commission over the next five years, establishing 
competitiveness as an overarching objective. It provides a framework to boost competitiveness 
by closing the innovation gap, decarbonising our economy, reducing excessive dependencies 
and increasing security, including by building up defence capabilities. This should boost the 
EU’s  growth  potential  across  all  Member  States  and  regions,  while  supporting  the  EU’s 
progress  towards  the  implementation  of  the  European  Pillar  of  Social  Rights  and  the  UN’s 
Sustainable Development Goals (SDGs). In addition, to underpin competitiveness across all 
sectors,  the  Competitiveness  Compass  sets  out  horizontal  enablers:  (i)  simplifying  the 
regulatory environment, reducing administrative burden and favouring speed and flexibility; 
(ii) fully exploiting benefits of scale offered by the Single Market by removing barriers; (iii) 
financing  through  a  Savings  and  Investments  Union,  and  a  refocused  EU  budget;  (iv) 
promoting skills and quality jobs while ensuring social fairness; and (v) better coordinating 
policies at EU and national level. Through its country-specific recommendations, the European 
Semester reflects these new priorities and provides guidance to Member States on the priority 
reforms and investments. 

EU budget instruments such as cohesion policy and the Recovery and Resilience Facility 
(RRF) continue to promote EU’s common objectives through national investments and 
reforms.  With  over  EUR  300  billion  disbursed,  the  RRF  supports  the  implementation  of 
country-specific  recommendations  and  drives  structural  reforms  in  key  policy  areas  for 
competitiveness. Examples include the support offered to Member States to tackle research and 
innovation  needs  (EUR 55 billion  of  committed  RRF  funds),  including  by  improving 
governance and unlocking necessary investments. Over EUR 525 billion2 are being mobilised 
by Member States under cohesion policy programmes to boost regional competitiveness and 
growth. The EU’s decarbonisation agenda is supported with over 42% of committed RRF funds 
(EUR 276 billion) and nearly EUR 130 billion3 are mobilised under cohesion policy towards 
the objective “Greener Europe”. In the field of employment, reforms under the recovery and 
resilience  plans  (RRPs)  address  structural  challenges  in  Member  States’  labour  markets. 
Reforms  in  the  field  of  education  and  training  contribute  to  promoting  high-quality 
employment, skills development and inclusion. Around EUR 68 billion4 from cohesion policy 
funds will be invested in measures supporting for instance skills training and counselling and 
investments in formal and non-formal education and training systems.  

1 A Competitiveness Compass for the EU, COM(2025) 30 final. 
2 Includes national co-financing. 
3 Includes national co-financing. 
4 The figure refers to the 2021-2027 programming period and includes national co-financing.  

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The EU is translating its strategic priorities into real actions at EU, national and regional 
levels. Already last year, the Strategic Technologies for Europe Platform (STEP) was launched 
to  pool  funds  from  11 EU programmes  to  support  the  EU’s  competitiveness  in  strategic 
technologies across all Member States. Further, the European Commission has put forward a 
proposal5 on the mid-term review of cohesion policy to maximise the contribution of 2021-
2027  cohesion  policy  to  the  current  and  emerging  political  priorities  of  the  EU,  enhancing 
support  for  competitiveness  and  decarbonisation,  defence,  affordable  housing  and  access  to 
water,  sustainable  water  management  and  energy  transition,  in  partnership  with  national, 
regional and local authorities, as well as a proposal to add defence as a fourth strategic sector 
for STEP. The Technical Support Instrument will play a key supporting role, with its single 
flagship initiative for 2026, focussing on providing support to Member States for implementing 
reforms outlined in the European Semester country specific recommendations (CSRs). Starting 
next year, the Social Climate Fund, based on national plans, will provide financing to tackle 
energy and transport-related poverty. As outlined in The road to the next multiannual financial 
framework6, with the next EU budget, the aim is to work closely with Member States and their 
regions to implement crucial reforms and investments. As a central mechanism for economic 

5 A modernised cohesion policy: the mid-term review; proposal for a regulation of the European Parliament and 
of the Council amending regulations (EU) 2021/1058 and (EU) 2021/1056 as regards specific measures to 
address strategic challenges in the context of the mid-term review. 
6 The road to the next multiannual financial framework, COM(2025) 46 final. 

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and employment policy coordination, the European Semester will contribute to this objective 
by identifying the needs that Member States should address to tackle key economic and social 
challenges. This will be complemented by the Competitiveness Coordination Tool, which will 
be introduced as a follow-up to the Competitiveness Compass to align industrial and research 
policies and investments at EU and national level around projects of common European interest 
or EU added value.  

The  last  decades  have  exposed  underinvestment  and  a  lack  of  efficient  spending  in 
Europe’s  defence  capabilities.  Given  the  current  geopolitical  context,  and  the  existential 
challenge Europe faces as a result of Russia’s war of aggression against Ukraine, Europe needs 
to  increase  its  defence  capabilities  and  build  a  strong  industrial  base.  In  order  to  provide 
Member States with additional budgetary space to increase their defence spending, within the 
EU’s fiscal rules, the Commission proposes Council Recommendations to activate the national 
escape clause under the Stability and Growth Pact (see Box 1). Member States are encouraged 
to boost innovation, research and development related to defence, including by leveraging the 
financial support from the European Defence Fund (EDF), the EU Defence Innovation Scheme 
(EUDIS),  the  SAFE  instrument  to  finance  common  procurements  projects,  and  voluntary 
allocations from other EU funds under shared management. Joint procurement could further 
contribute  to  Member  States’  effort  to  ramp  up  their  defence  industrial  capacity  and  to 
strengthen their technological base. Overall, taking into account the flexibility unlocked by the 
national  escape  clauses,  based  on  projections  of  gradual  take-up,  defence  investment  could 
reach at least EUR 800 billion over the next four years7. 

2.  APPROACH TO THE 2025 COUNTRY-SPECIFIC RECOMMENDATIONS 

The  2025  country  reports  provide  a  thorough  analysis  of  economic,  employment  and 
social  developments  within  Member  States,  in  line  with  the  framework  of  the 
Competitiveness  Compass.  These  reports  highlight,  for  each  Member  State,  the  key 
challenges affecting competitiveness and prosperity. They also offer an updated assessment of 
the progress made in implementing past CSRs, in absorbing EU funds, in delivering on the 
SDGs and in adhering to reformed fiscal rules. For the first time, this assessment reflects the 
annual progress reports submitted by Member States on the implementation of their medium-
term fiscal-structural plans, as part of the new economic governance framework.  

The  2025  CSRs  provide  comprehensive  and  coherent  policy  guidance.  With  the  RRF 
coming to an end in 2026, the 2025 European Semester cycle moves to a more comprehensive 
set  of  CSRs,  phasing  out  the  approach  introduced  during  the  earlier  phases  of  RRF 
implementation. As such, the 2025 cycle provides guidance on reform and investment priorities 
in  each  Member  State  based  on  a  broadening  analysis  to  identify  the  relevant  structural 
challenges.  

The  Commission’s  simplification  efforts  are  reflected  in  the  European  Semester.  The 
outstanding stock of 2019-2024 CSRs has been critically reviewed, taking into consideration 
their coverage in the RRPs and their continued relevance. On that basis, and taking into account 
emerging  challenges, the 2025 CSRs provide, for each Member State, a consolidated set of 
recommendations on which further policy actions are needed by the Member States. This will 

7 Joint White Paper for European Defence Readiness 2030. 

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improve transparency and help simplify the annual reporting on and assessment of progress in 
implementing the CSRs by Member States and the Commission.  

Swiftly implementing EU funds and maximising their impact remains a high priority. As 
the RRF enters its final  stages, with just a year and a half remaining until the August 2026 
deadline,  effective  implementation  of  reforms  and  investments  by  Member  States  is 
increasingly  urgent.  To  accelerate  progress,  the  recommendations  on  RRF  implementation 
have been tailored to reflect the scale and urgency of the required actions. Member States with 
a RRP representing less than 3% of GDP are encouraged to complete implementation within 
the originally foreseen timeline of August 2026. Among the countries whose RRP represents 
more than 3% of GDP, those with over 85% of milestones and targets still to be achieved are 
strongly urged to intensify their implementation efforts. The others, which record between 85% 
and 50% of their milestones and targets outstanding, should also increase their pace. Using the 
possibilities provided by STEP is also key to ensuring continuous support to competitiveness 
and growth. Commission proposals creating additional possibilities under cohesion policy to 
accelerate implementation and to support strategic priority areas within the mid-term review of 
cohesion  policy  programmes  in  2025  can  further  leverage  investment  in  key  areas  for  the 
Union, its Member States and regions. Moreover, creating or topping-up InvestEU Member 
State compartments could mobilise up to EUR 240 billion in additional investments. 

This Spring Package consists of: 

•  country reports identifying Member States’ main challenges to competitiveness; 
•  country-specific recommendations for policy actions to tackle reform and investment 

needs; 

•  a report examining the reasons for exceeding the 3% of GDP deficit reference value for 

4 Member States (Spain, Latvia, Austria, Finland); 

•  proposals for Council recommendations on the activation of the national escape clause; 
•  a  recommendation  for  a  Council  recommendation  on  the  medium-term  plan  for 

Lithuania; 

•  an opinion on the Draft Budgetary Plan of Belgium; 
•  a recommendation for a Council recommendation on action taken by Romania under 

• 

the EDP; 
reports  on  post-programme  surveillance  for  five  Member  States  (Greece,  Spain, 
Portugal, Cyprus and Ireland); and 

•  a  proposal  for  a  reconduction  of  the  guidelines  for  the  employment  policies  of  the 

Member States. 

3.  KEY COMPETITIVENESS CHALLENGES AHEAD 

3.1 Macroeconomic developments  

In  spite  of  high  uncertainty  about  international  developments,  the  EU  economy  is 
expected  to  continue  to  grow,  albeit  at  a  moderate  pace.  Remarkably  strong,  though 
moderating, performance of the labour market in the past few years, together with declining 
inflation, has led to a recovery of real wages. This is set to support growth in demand, also 
helped  by  easing  financing  conditions.  However,  the  volatile  trade  and  security  situation 
increases headwinds for economic growth. Real GDP growth is expected to increase slightly 
from 1.0% in 2024 to 1.1% in 2025 and further to 1.5% in 2026, indicating stable and consistent 
expansion at a moderate pace, which provides a favourable environment  for businesses and 
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investors.  EU  trade  performance,  however,  faces  a  significant  risk  of  disruption.  The 
Commission has identified vulnerabilities related to macroeconomic imbalances or excessive 
imbalances in seven Member States as part of the macroeconomic imbalance procedure. Box 
2 summarises the findings on macroeconomic imbalances in the Member States. 

EU  financial  markets  and  intermediaries  have  shown  resilience  to  economic  and 
geopolitical  challenges.  Overall,  strong  profits,  sound  capital  levels,  and  sizeable  liquidity 
buffers support EU banks’ capacity to provide stable financing to the economy and to resist 
well  to  future  risks.  Banks’  asset  quality  is  close  to  an  historical  high  but  rising  corporate 
insolvencies and pockets of vulnerabilities in commercial real estate indicate the need to watch 
credit risk closer. Furthermore, operational risk for banks and other financial sector institutions 
has become more prominent, with the increasing occurrence of cyber incidents.  

The  fiscal  outlook  points  to  slight  increases  in  the  government  deficit  and  debt  ratios, 
after the strong reduction since 2021. In the euro area the government deficit-to-GDP ratio 
decreased from 3.5% in 2023 to 3.1% in 2024, and in the EU from 3.5% to 3.2%. According 
to the Commission Spring 2025 Forecast, in 2025 the deficit is projected to slightly increase to 
3.2% of GDP in the euro area and to 3.3% in the EU. In 11 Member States the deficit is expected 
to be above the 3% of GDP threshold. The decline in government gross debt-to-GDP ratio has 
halted:  the  ratio  stabilised  between  2023  and  2024  at  88.9%  of  GDP  in  the  euro  area  and 
increased marginally to 82.2% in the EU. It is projected to increase by 1 percentage point in 
2025 in both the euro area and the EU. Box 1 provides an overview of the main findings on the 
fiscal surveillance under the reformed Stability and Growth Pact. 

Box 1: Fiscal surveillance under the reformed Stability and Growth Pact 

The  Spring  2025  European  Semester  package  marks  the  conclusion  of  the  first  annual 
cycle  of  macroeconomic  surveillance  under  the  reformed  economic  governance 
framework. Following the entry into force of the new framework in April 2024, all Member 
States but Germany have submitted their first medium-term plans. The Annual Progress Reports 
submitted  by  Member  States  at  the  end  of  April  take  stock  of  the  progress  made  in  the 
implementation of these medium-term plans8.  

Together with the Commission Spring 2025 Forecast and 2024 outturn data they provide key 
inputs  for  the  assessment  of  Member  States’  compliance  with  the  maximum  growth  of  net 
expenditure. In its assessments, the Commission has taken into account the flexibility provided 
under  the  national  escape  clause  for  the  relevant  Member  States,  assuming  its  timely 
endorsement  by  the  Council9.  For  Germany,  a  full  assessment  of  compliance  cannot  yet  be 
undertaken in the absence of a medium-term plan. The Commission expects Germany to submit 
its plan by end-July 2025.  

The coordinated activation of the national escape clause under the Stability and Growth Pact is 
part  of  the  ReArm  Europe  Plan/Readiness  2030  package  presented  in  March  2025  and 
demonstrates  the  framework’s  flexibility  to  accommodate  unexpected  developments.  The 
national  escape  clause  allows  Member  States  to  exceed  the  maximum  growth  rates  of  net 
expenditure recommended by the Council within certain limits linked to the increase in their 

8 Romania has not yet submitted its Annual Progress Report.  
9 In practice, the deviation for higher defence expenditure that would be permitted in case of activation of the 
national escape clause by the Council, in line with the Commission’s recommendations was taken into account 
by  the  Commission  when  assessing  compliance  with  the  net  expenditure  path  set  under  the  preventive  arm 
(Regulation (EU) 2024/1263) and when assessing effective action regarding compliance with the corrective path 
set under the corrective arm (Regulation (EC) 1467/97. 

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defence spending. Following the requests by 16 Member States (Belgium, Bulgaria, Czechia, 
Denmark,  Germany,  Estonia,  Greece,  Croatia,  Latvia,  Lithuania,  Hungary,  Poland,  Portugal, 
Slovenia,  Slovakia,  Finland),  the  Commission  has  today  adopted  recommendations  to  the 
Council to activate the national escape clause, which are now pending adoption by the Council.  

For the eight Member States in an excessive deficit procedure (EDP), the Commission has 
assessed  the  action  taken  in  response  to  the  Council  recommendations  under  the  EDP. 
Based on that assessment, the procedures for Italy, Slovakia, Hungary, Poland, France and Malta 
are held in  abeyance, with the latter two Member States being invited to  stand ready to take 
further  measures  in  view  of  the  Commission  forecasting  a  small  deviation  from  the 
recommended net expenditure growth. For Belgium, the Commission has recommended a new 
corrective path following the submission of its medium-term plan, which is pending the adoption 
by the Council. Net expenditure growth in 2025 in Belgium is projected to be above the ceiling 
of this recommendation but within the flexibility provided by the national escape clause. For 
Romania, net expenditure growth is well above the ceiling established by the corrective path, 
with  clear  risks  to  the  timely  correction  of  the  excessive  deficit  by  2030.  Therefore,  the 
Commission is recommending to the Council to adopt a decision that establishes no effective 
action.  In  order  to  safeguard  fiscal  and  macroeconomic  stability,  and  ensure  continued  full 
access to EU funding, Romania should take swift action to comply with the requirements of the 
excessive deficit procedure. 

The Commission has assessed progress with the implementation of the medium-term plans 
of the other 18 Member States. 12 Member States (Bulgaria, Czechia, Denmark, Estonia, 
Greece, Croatia, Latvia, Lithuania, Austria, Slovenia, Finland, Sweden) are projected to be 
compliant with the recommended maximum growth of net expenditure, where relevant taking 
into account the flexibility provided by the national escape clause based on current projections 
of defence spending. For Lithuania, the Commission has today recommended to the Council the 
endorsement of its medium-term plan. Portugal and Spain are broadly compliant. For Spain the 
net expenditure growth in 2025 is projected to be above the ceiling recommended by the Council 
but does not exceed the thresholds of 0.3% of GDP (annual) and 0.6% of GDP (cumulated). For 
Portugal, the projected cumulated deviation, taking into account the flexibility provided by the 
national escape clause for defence spending is below the threshold of 0.6% of GDP. For Ireland, 
Cyprus, Luxembourg and the Netherlands, the Commission sees a risk of deviation from the 
recommended  net  expenditure  path,  as  the  growth  rate  in  2025  is  projected  to  be  above  the 
ceiling  recommended  by  the  Council  and  the  deviations  exceed  the  thresholds  for  annual  or 
cumulated deviations.   

This preliminary assessment, based on the Commission Spring 2025 Forecast, will be followed 
up by a further assessment in autumn and a final assessment will take place in spring 2026 based 
on outturn data for 2025. 

The  assessment  of  implementation  of  medium-term  plans  also  considers  the  set  of 
investment  and  reforms  underpinning  an  extension  of  the  respective  fiscal  adjustment 
periods.  This  concerns  Spain,  France,  Italy,  Finland,  Belgium  and  Romania.  A  detailed 
assessment of the state of play of implementation of these commitments is available in Annex 1 
to  the  respective  Country  Reports.  In  the  case  of  Romania,  the  response  to  the  Council 
Recommendation of 21 January 2025 so far is deemed to be insufficient.   

The  Commission  has  assessed  compliance  with  the  deficit  criterion  for  four  Member 
States, underpinning a possible decision on the existence of an excessive deficit. For Austria, 
Finland, and Spain, the assessment is based on a general government deficit above the 3% of 
GDP deficit reference value in 2024. For Latvia the assessment is based on a planned deficit in 
2025 exceeding the 3% of GDP reference value. On the basis of the analysis in the report, there 
is  no  case  to  open  an  excessive  deficit  procedure  for  Finland,  Latvia  and  Spain.  Concerning 
Austria,  taking  into  account  the  Opinion  of  the  Economic  and  Financial  Committee  on  its 

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Report,  the  Commission  will  consider  proposing  to  open  an  excessive  deficit  procedure  by 
proposing  to  the  Council  to  adopt  a  Decision  under  Article  126(6)  TFEU  establishing  the 
existence of an excessive deficit. 

Appendix 5 details the country-specific aspects. 

Box 2: Macroeconomic imbalances in the Member States 

The  Commission  has  assessed  the  existence  of  macroeconomic  imbalances  for  the  10 
Member States selected for in-depth reviews (IDRs) in the 2025 Alert Mechanism Report. 
Of those, nine Member States had been identified with imbalances or excessive imbalances in 
the previous cycle of surveillance under the macroeconomic imbalance procedure (MIP), and 
Estonia  was  deemed  to  display  risks  of  newly  emerging  imbalances.  In  line  with  the  new 
approach that was applied in 2024, the 2025 IDRs have been presented to the Member States 
before the publication of the Spring Package to enable more in-depth multilateral discussions in 
the Council Committees before concluding on the findings of imbalances and the subsequent 
formulation of the country-specific recommendations10.  

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

The  classifications  are  made  at  a  time  of  uncertainty  with  respect  to  the  global  trade 
environment.  The  classification  decisions  under  the  MIP  take  into  consideration  the 
Commission  Spring  2025  Forecasts,  which  follow  technical  assumptions  hinging  upon  the 
customary no-policy change assumption as the outcome of bilateral negotiations with the trade 
partners  cannot  be  anticipated.  They  also  reflect  the  considerable  uncertainty  related  to  the 
global trade and geopolitical environment and its economic implications.  

The Commission took several decisions under the MIP. The strong inflationary environment 
of recent years has dissipated, and interest rates have been coming down. Despite the overall fall 
in inflation, there are still strong cost pressures in some cases, and these continue to put pressure 
on cost competitiveness, in particular in a number of Member States. House prices have started 
to  rise  more  strongly  again.  The  deleveraging  of  debt  stocks  –  which  has  been  facilitated  in 
recent years through strong nominal GDP growth – is becoming more difficult. Vulnerabilities 
are receding in several of the Member States subject to an IDR and in some cases leading to a 
finding of no imbalances under the MIP. Developments are generally favourable in most of the 
remaining Member States analysed but relevant challenges remain. In particular: 

•  Estonia is not experiencing imbalances as vulnerabilities relating to deteriorating price and 
cost competitiveness have been present in recent years amid a protracted recession, and 
house prices have grown considerably, but overall vulnerabilities seem to be contained at 
present. 

•  Germany  is  no  longer  experiencing  imbalances  as  vulnerabilities  related  to  the  large 
current account surplus, which had cross-border relevance, have declined over the years, 
while significant policy progress has very recently been announced. 

10 SWD(2025) 68 to 71 and SWD(2025) 122 to 127. 

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•  Cyprus is  no longer experiencing  imbalances as  vulnerabilities relating  to external  and 
private debt are receding, in part on account of strong economic growth, while government 
debt reduction is further supported by continued budgetary surpluses. Cyprus has made 
important  progress  in  implementing  measures  that  address  its  vulnerabilities,  but  the 
current account deficit remains sizeable. 

•  Greece,  Italy,  Hungary,  the  Netherlands,  Slovakia,  and  Sweden  continue  to  experience 

imbalances as their vulnerabilities remain overall relevant. 

•  Romania continues to experience excessive imbalances; the vulnerabilities have increased 
as Romania’s twin fiscal and current account deficits widened, and cost competitiveness 
deteriorated in 2024. 

Appendix 4 details the country-specific aspects for the 10 Member States concerned. 

Improving the efficiency and quality of public finances, including through a balanced tax 
mix,  will  help  Member  States  finance  policy  priorities.  The  high  public  debt  level  in  a 
number of Member states, in a volatile economic environment, underscores the importance of 
ensuring the quality of public expenditure. Policy actions in that respect include in particular 
reviewing  and  improving  the  long-term  efficiency  of  public  spending  and  improving  the 
framework for public investment  management.  In addition,  reducing  tax  gaps,  among  other 
things  by  limiting  tax  expenditures,  especially  those  least  cost-effective,  and  stepping  up 
taxpayer compliance are instrumental to building more stable revenues in a fair manner. This 
should  be  complemented  with  continued  modernisation  and  digitalisation  of 
tax 
administrations as well as with effective tools to fight aggressive tax planning strategies and 
strengthened exchange of information. Besides improving efficiency, improving the quality of 
public finances, including through tax reform, can contribute to  other policy objectives, for 
example by reducing the tax burden on labour to increase employment. Tax incentives also 
play a crucial role in decarbonisation. The 2025 CSRs call on several Member States to improve 
the tax mix to support sustainable competitiveness, by reducing barriers to private investment 
as well as to speed up investment in decarbonisation and clean energy infrastructure, including 
by further speeding up permitting processes, to support the achievement of national and EU 
environmental and climate goals.  

3.2 Closing the innovation gap 

Closing  the  innovation  gap  requires  greater  investment,  abundant  talent,  stronger 
science-business collaboration, technological adoption and diffusion and enhanced policy 
coordination.  Fragmented  public  investment  and  insufficient  private  R&D  limit  the  EU’s 
innovation potential. Essential aspects in achieving progress are stronger researcher-business 
collaboration, coherent innovation policies across governance levels, and addressing science, 
technology, engineering and mathematics (STEM) talent shortages. The rapid roll-out of digital 
infrastructure and the implementation of the national digital decade strategic roadmaps will be 
key to achieving the digital decade targets and goals, which are crucial for enabling innovation, 
productivity and an inclusive digital transformation. Moreover, it must be easier, cheaper and 
faster for scientific discoveries and new technologies to emerge from laboratories and reach 
the market  and for start-ups to scale-up, fully exploiting the potential of the Single Market, 
including for the space sector.  

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The Commission is putting research and innovation at the heart of our economy. With the 
Choose Europe initiative, a EUR 500 million package will bolster researcher “super‑grants” 
under the ERC, double relocation top‑ups and boost Marie Skłodowska‑Curie support over the 
2025-27 period. Furthermore, the recently published AI Continent action plan aims to boost AI 
and  the  establishment  of  AI  gigafactories  across  Europe,  and  the  EU  Startup  and  Scaleup 
Strategy aims to improve the framework conditions for setting-up and scaling-up innovative 
businesses in Europe. The RRF and cohesion policy already support research and innovation 
(R&I) in the Member States by allocating over EUR 55 billion from the RRF to R&I while 
EUR 113.6 billion11 of cohesion policy funding is dedicated to the objective ‘A smarter Europe’ 
encompassing  support  for  R&I,  digital  infrastructure  and  skills  for  innovation.  The  Digital 
Europe Programme has been at the forefront of the technological initiatives of the European 
Commission,  with  EUR  1.3  billion  earmarked  for  the  period  2025–2027  in  relevant  policy 
fields. The RRPs also include more than 70 reforms to consolidate institutions, boost research 
careers,  ease  funding  access,  enhance  collaboration,  and  improve  governance  coordination. 
The  2025  CSRs  call  on  Member  States  to  intensify  efforts  to  close  the  innovation  gap  by 
increasing  public  and  private  R&D  investment,  enhancing  R&D  support  effectiveness,  and 
reducing ecosystem fragmentation. This aims to contribute to reaching the EU's spending target 
for R&D of 3 % of GDP12. The CSRs also stress the need to translate scientific discoveries into 
business  opportunities,  by  strengthening  science-business  collaboration  and  promoting  the 
commercialisation of research results. A strong focus is placed on improving access to finance 
for start-ups and innovative companies, aiming to foster a dynamic and thriving R&I ecosystem. 
Additionally, the CSRs urge some Member States to close the investment gap for connectivity 
and  streamline  regulation  for  digital  infrastructure  roll-out,  which  is  key  for  improving 
productivity and strengthening competitiveness.  

3.3 A joint roadmap for decarbonisation, competitiveness and security 

It  is  crucial  to  secure  an  affordable  energy  transition  for  European  consumers  and 
industry. While electricity and gas prices have fallen overall compared to the peaks in 2022, 
industrial retail electricity and gas prices remain significantly higher in the EU than in the US 
(2 to 2.5 and 3 to 5 times the US prices13, respectively). Building on the relevant reforms and 
investments under their RRPs, Member States are taking steps towards a more fully integrated 
energy  market,  supported  by  an  interconnected  and  digitalised  network  and  a  stronger 
regulatory framework. The REPowerEU chapters of RRPs and cohesion policy programmes 
provide significant firepower to decarbonise the energy system, driven by a substantial scale-
up  of  investments  in  renewable  energy  and  clean  energy  infrastructure,  ensuring  the  rapid 
acceleration  of  electrification,  with  energy  efficiency  at  its  centre.  The  2025  CSRs  call  for 
continued decarbonisation of the energy system and, for a number of Member States, include 
recommendations to take concrete steps to phase out fossil-fuel subsidies that do not address 
energy poverty in a targeted way nor genuine energy security concerns, hinder electrification 
and are not crucial for industrial competitiveness. Supporting Member States’ efforts, the EU’s 
Action Plan for Affordable Energy aims to lower energy prices and further reduce fossil-fuel 

11 With national co-financing. 
12 https://data.consilium.europa.eu/doc/document/ST-16179-2024-INIT/en/pdf.  
13 European Commission (DG ENER Chief Economist unit) calculations based on price data from Eurostat and 
the US Energy Information Administration (EIA). 

9 

 
 
 
imports, achieving annual savings of up to EUR 130 billion by 2030. For this, completion of 
the Energy Union, electrification, energy efficiency, an accelerated deployment of renewable 
and  clean  energy,  improved  grid  capacity,  including  cross-border  interconnectors  and  the 
efficient use of existing ones, smart grid infrastructure, and greater energy system flexibility, 
are essential.  

The focus should remain on reducing excessive dependencies and strengthening energy 
security.  Member  States  have  made  substantial  progress  in  implementing  the  REPowerEU 
plan,  including  through  the  dedicated  chapters  in  the  RRPs,  to  phase  out  Russian  energy 
imports. Nevertheless, these imports still represent a significant part of the EU’s energy mix. 
In  this  regard,  in  May  2025  the  Commission  adopted  the  REPowerEU  Roadmap  towards 
ending  Russian  energy imports  to  ensure the EU’s full energy independence from  Russia14, 
with the aim of phasing out all Russian energy imports by end-2027. The respective legislative 
proposal will be adopted in June. Continued action at national level is therefore required to 
improve  energy  efficiency  across  sectors  and  accelerate  renewable  energy  use  while 
diversifying to more reliable partners. The 2025 CSRs also encourage Member States to further 
strengthen their clean energy infrastructure, including interconnections, and energy storage to 
allow for the increase of renewable and clean electricity production and to ensure the resilience 
and security of electricity supply.  

Enhancing resource efficiency and promoting the circular use of materials contribute to 
decarbonisation,  improve  competitiveness,  and  bolster  economic  security.  To  secure  a 
stable and affordable supply and to strengthen the EU’s capacity for extracting, processing and 
recycling  materials  that  are  critical  for  the  clean  energy  transition,  the  first  list  of  strategic 
projects  under  the  Critical  Raw  Materials  Act  has  been  announced.  Additionally,  the 
Commission  will  adopt  a  Circular  Economy  Act  in  2026,  which  will  tackle  persistent 
bottlenecks in the supply of and demand for secondary raw materials, circular products and 
services. At national level, the 2025 CSRs call on Member States to improve the conditions for 
the transition towards a circular economy, by increasing waste prevention, fostering resource 
efficiency,  stepping  up  public  and  private  investments  and  promoting  solutions  to  improve 
durability, reusability, reparability and recyclability of products.  

The  EU  and  its  Member  States  need  to  advance  the  transition  to  a  climate-neutral 
economy while ensuring that their industry remains competitive. The swift implementation 
of the Net-Zero Industry Act is crucial to enhance European manufacturing capacity for net-
zero technologies and their key components, addressing barriers to scaling up production in 
Europe. Further, the Clean Industrial Deal was presented by the Commission in February to 
support  and  accelerate  the  transition  of  European  industries,  unlocking  investments  and 
supporting companies, with a focus on energy-intensive industries and the clean-tech sector. 
Moreover, the Commission presented action plans for the automobile sector and steel and metal 
sectors  to  bolster  their  competitiveness  and  promote  decarbonisation.  The  2025  Semester 
Spring Package emphasises that Member States should support the creation of lead markets 
and put into place plans and policies for net-zero infrastructure, in particular the strengthening 
of energy infrastructure, carbon capture and storage, and hydrogen. The CSRs also refer to the 
urgent need to transform and decarbonise industrial production and transport. While the EU is 

14 COM(2025) 440 final/2. 

10 

 
 
well on track to reach its 55% climate target for 203015, swift and steady implementation of the 
national energy and climate plans remains equally important in meeting the 2030 energy and 
climate objectives. 

Climate change adaptation, including through sustainable water management, remains a 
pressing priority for the  EU, as it is crucial for safeguarding resources and enhancing 
prosperity and security. Member States continue to face challenges related to water pollution, 
inefficient  use,  poor  governance  of  water  management,  and  inadequate  pricing  policies,  in 
addition to the human and economic costs of droughts and floods. The 2025 CSRs therefore 
include  policy  actions  for  a  number  of  Member  States  to  strengthen  water  governance  at 
national and regional level and undertake significant investments. Further, the Water Resilience 
Strategy  provides  a  consistent  framework  to  ensure  sustainable  water  management  and  to 
address  challenges  related  to  water  scarcity  and  quality.  The  recently  proposed  mid-term 
review of cohesion policy has reinforced the objective related to promoting secure access to 
water, sustainable water management and water resilience and enhanced pre-financing and co-
financing rates. The forthcoming European Climate Adaptation Plan will help Member States 
prepare  and  plan  for  climate  impacts  on  critical  infrastructure,  strategic  sectors  and  related 
investments. 

3.4 Simplifying the regulatory environment 

Simplifying  regulation,  reducing  burden  and  ensuring  effective  implementation  are 
essential  for  making  business  easier  and  fostering  prosperity  in  the  EU.  Regulatory 
complexity remains a major obstacle to long-term investment in Europe, with two thirds of 
European  companies  considering  this  as  a  key  barrier 16 .  The  diversity  and  length  of 
administrative procedures across Europe are an impediment to investment, with simplification 
efforts  needed  across  EU,  national  and  local  levels.  The  Commission  is  delivering  an 
unprecedented  simplification  and 
to  reduce 
administrative  costs  by  at  least  25%,  and  at  least  35%  for  SMEs  by  2028.  This  equals  to 
achieving  at  least  EUR 37.5 billion  administrative  cost  savings  until  the  end  of  the  current 
Commission’s term of office. The Commission has so far adopted four extensive simplification 
proposals, in the areas of sustainability reporting, investment, the common agricultural policy 
and small mid-caps and digitalisation of product  rules. It urges the co-legislators to reach a 
swift agreement on the proposals and will continue working towards its simplification goals by 
stress-testing the EU acquis to identify overlaps or inconsistencies that may be addressed in 
simplification proposals.  

implementation  agenda 17  and  aiming 

Member  States  also  have  a  responsibility  to  contribute  to  the  simplification  efforts 
through legislative and administrative reforms. New consultation tools like implementation 
dialogues and reality checks are helping to identify bottlenecks and lay out ways to improve 
implementation of the existing regulatory framework. The Commission will also improve the 
quality  of  new  legislation  by  ensuring  any  new  proposal  is  conducive  to  growth  and 
competitiveness,  by  applying  a  renewed  SME  and  competitiveness  check.  Companies’ 
perception  of  how  easy  it  is  to  comply  with  national  laws  and  administrative  requirements 

15 COM(2025) 274. 
16 EIB Investment Survey 2024 - European Union overview. 
17 Simplification and Implementation - European Commission. 

11 

 
 
 
varies across Member States. More than 45% of citizens think that the public administration in 
their  country  is  complex,  burdensome  and  slow.  Member  States  should  ensure  that  their 
regulatory  framework  is  conducive  to  growth,  avoid  any  unnecessary  burden  when 
implementing  EU  laws,  ensure  swift  implementation  of  simplification  proposals,  boost 
digitalisation  and  facilitate  permitting,  certification  and  seamless  exchange  of  information 
among public administrations at all levels of government.  

Accordingly, the 2025 CSRs call on Member States to simplify administrative procedures 
and regulatory frameworks across sectors by reducing complexity, cutting red tape and 
improving  regulatory  tools.  The  CSRs  urge  Member  States  to  streamline  permitting  and 
licensing  processes  –  shortening  appeal  timelines,  digitalising  applications  and  clarifying 
land‑use  and  grid‑connection  rules  –  to  accelerate  renewable  energy  roll‑out,  housing 
construction and infrastructure deployment. The CSRs also call on Member States to enhance 
the quality of lawmaking through robust stakeholder consultation, independent oversight and 
evidence‑based evaluations to boost legal certainty and competitiveness. 

3.5 Making the most of Europe’s Single Market 

To unleash the full potential of the Single Market, the remaining barriers that hinder 
cross-border  business  and  investment  must  be  removed.  While  the  Single  Market  has 
fostered growth and prosperity, it remains insufficiently integrated. SMEs, start-ups, and scale-
ups face obstacles such as burdensome administration, restrictive regulations, late payments, 
and limited access to finance. Inadequate digital, energy and transport infrastructure weaken 
competitiveness, while the lack of coordinated services integration limits potential – services 
trade makes up just 7.6% of GDP18. Given the sector’s scale, deeper integration offers major 
opportunities. To address these barriers, the European Commission has presented the Single 
Market Strategy setting out a series of competitiveness actions to facilitate cross border trade 
and a smooth functioning of Europe’s Single Market. The early and gradual integration of EU 
candidate  countries  into  parts  of  the  Single  Market  will  bolster  it  further.  To  streamline 
innovation across the Single Market, the Unitary Patent system is reducing legal fragmentation, 
cutting  patenting  costs, and facilitating cross-border trade, with  over 50,000 unitary patents 
already  registered.  As  part  of  the  RRPs’  implementation,  a  number  of  Member  States  have 
recently  adopted  reforms  to  strengthen  the  Single  Market  by  liberalising  services  markets, 
simplifying  the  regulatory  framework  for  a  range  of  professions,  modernising  and 
professionalising public procurement, and supporting trade and investment. The 2025 CSRs 
focus  on  strengthening  the  Single  Market  by  urging  Member  States  to  reduce  regulatory 
barriers,  enhance  competition  and  improve  public  procurement.  CSRs  also  call  for  more 
strategic  industrial  planning  to  address  territorial  disparities  and  support  infrastructure, 
innovation, and value chains. The rule of law plays an important role in the functioning of the 
EU  economy,  ensuring  that  rights  are  defended,  corruption  is  punished,  and  contracts  are 
enforced. 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,  where  companies  benefit  from  free 
movement and predictable business conditions. Where relevant, and where not covered by the 

18 Average of services exports and imports over GDP. 

12 

 
 
 
RRPs and in complementarity with the Rule of Law Report, the CSRs call on Member States 
to increase the efficiency of judicial systems and strengthen anti-corruption.  

Box 3: Barriers to investment 

Investment across European countries is hindered by a range of structural barriers, both 
at the private and public level. The 2025 Semester Spring Package identifies the main factors 
hindering  investment  in  Member  States.  Regulatory  complexity  and  administrative  burden 
represent  one  of  the  main  obstacles  to  investment,  with  several  Member  States  having 
inconsistent  or  rapidly  changing  legal  frameworks,  bureaucratic  inefficiencies,  and  weak 
coordination  across  government  layers.  This  unpredictability  deters  long-term  investments, 
particularly  for  SMEs.  Another  significant  challenge  is  the  widespread  shortage  of  skilled 
labour, affecting over 75% of businesses. This scarcity is particularly acute in technical, ICT, 
and  scientific  fields,  limiting  innovation  and  productivity  growth.  High  energy  costs  also 
represent a serious hurdle to investment, impacting operating margins and the competitiveness 
of  energy-intensive  industries.  Furthermore,  access  to  finance  remains  limited  in  several 
member states due to  underdeveloped capital  markets  and a heavy reliance on bank lending, 
with firms struggling to secure venture capital or alternative financing. Public investment also 
suffers from lack of coordination across government levels as well as deficient planning and 
project  appraisal.  Several  Member  States  lack  standardised  methodologies  for  assessing, 
selecting,  and  reviewing  investment  projects,  resulting  in  inefficiencies  and  missed 
opportunities. Lastly, geopolitical uncertainty and inadequate infrastructure planning exacerbate 
these issues, leading to delays in renewable energy deployment, transport modernisation, and 
infrastructure  roll  out.  Together,  these  barriers  create  a  fragmented  investment  landscape, 
hampering the EU competitiveness. 

3.6 Financing competitiveness and a Savings and Investments Union 

The development of a Savings and Investments Union19 is set to improve the way the EU 
financial  system  supports  citizens’  wealth  creation  and  investments  into  the  strategic 
priorities set by the Competitiveness Compass. Over the last decade, the private sector in 
the EU has  been generating  average net  savings  to  the tune of 8.0% of GDP. Only about  a 
quarter of these savings have been funding domestic private investment, as EU capital markets 
remain  relatively  underdeveloped  by  international  standards  and  overall  make  only  a  small 
contribution to the external funding of companies. The Savings and Investments Union, which 
draws  on  progress  already  made  under  the  Capital  Markets  Union  action  plans,  aims  at 
deepening integration and risk sharing in capital markets. It also aims at further developing the 
Banking Union. In line with the work on the Savings and Investments Union, the 2025 CSRs 
outline  targeted  actions  at  national  level  to  improve  access  to  finance.  The  set  of  proposed 
policy actions includes: (i) encouraging retail and institutional investors’ participation in capital 
markets;  (ii)  increasing  the  non-bank  funding  opportunities  for  EU  businesses,  including 
innovative  start-ups  and  scale-ups,  and  especially  for  small  to  medium--sized  enterprises 
(SMEs);  (iii)  developing  local  private  equity  and  venture  capital  markets  and  increasing 
competition  in  the  financial  markets  where  necessary;  and  (iv)  improving  overall  financial 
literacy. 

19 COM(2025) 124 final. 

13 

 
 
 
 
3.7 Promoting skills and quality jobs while ensuring social fairness  

The EU labour market has been very resilient amid heightened uncertainty, but further 
policy action is needed to support labour market participation and foster Europe’s labour 
productivity. The EU labour market remains strong, with a historically low unemployment 
and record employment. The EU is well on track to reach the European Pillar of Social Rights’ 
headline  employment  rate  target  of  78%  by  2030,  also  reflecting  the  policies  and  reforms 
adopted by many Member States over more than a decade. Labour shortages have slightly eased 
in the past year but remain above pre-pandemic levels in most Member States, and are projected 
to increase, hindering the ability of businesses to invest and innovate. Greatly varying across 
regions and sectors and aggravated also by demographic trends and low supply of affordable 
housing, labour shortages are persistent in construction, health and long-term care, technology, 
engineering, ICT and transport, weighing on competitiveness and growth.  

Concerted efforts at EU and Member State level  are  needed to foster inclusive labour 
markets. National  RRPs and cohesion  policy programmes  contain many relevant  measures 
addressing  labour  market  segmentation,  improving  effectiveness  of  public  employment 
services,  supporting  labour  mobility,  and  providing  targeted  support  to  specific  groups. 
Nevertheless, additional efforts are still needed. The labour market participation of women and 
underrepresented groups (such as older workers, youth, low-skilled, persons with disabilities, 
Roma and people with a migrant background) is key, also in view of the shrinking working-
age population, as emphasised in the Union of Equality Strategies20. Recommendations in the 
Spring  Package  call  on  Member  States  to  put  in  place  more  effective  active  labour  market 
policies and well-designed tax and benefit systems with the right incentives to work, in addition 
to  upskilling  and  reskilling  efforts.  Fostering  access  to  high-quality  and  affordable  early 
childhood education and care services, as well as social and long-term care, providing adequate 
adaptations  for  persons  with  disabilities,  and  improving  working  conditions  is  needed  to 
remove  barriers  to  labour  market  participation  and  attract  people  to  key  sectors 21.  Wage 
developments  require  careful  monitoring  and  need  to  strike  a  balance  between  ensuring 
productivity and competitiveness, on the one hand, and addressing the cost of living, on the 
other. Social dialogue and collective bargaining play a key role in this. Moreover, mobility of 
workers  within  the  EU  remains  important,  while  fostering  legal  migration  from  non-EU 
countries  will  also  be  increasingly  needed  to  match  EU  labour  market  needs.  The 
Commission’s  forthcoming  Quality  Jobs  Roadmap  will  play  a  key  role  in  guiding  EU  and 
national level action. 

Boosting human capital is key for a competitive, prosperous and inclusive Europe. On top 
of policies to attract and retain talent, recommendations in the Spring Package call on Member 
States  to  boost  the  skills  levels  of  Europe’s  population  and  the  inclusiveness  of  education 
systems. Across the EU, the last years have seen a steep decline in the levels of basic skills, 
including a decrease in the share of top performers22. Around half of people in the EU still lack 
basic digital skills,  while participation  in  adult learning remains significantly below the EU 

20 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. 
21 The  Demography  Toolbox  also  points  to  actions  to  address  demographic  challenges  and  their  impact  on 
Europe’s competitive edge. 
22 European Commission (2024). The twin challenge of equity and excellence in basic skills in the EU.  

14 

 
 
Pillar’s headline target of 60% by 2030. Against a background of skills and labour shortages23, 
further efforts are needed to bolster investment in lifelong learning, facilitate skills retention 
and  recognition,  and  make  learning  opportunities  more  accessible  to  underserved  groups. 
Education and training systems in Member States and regions need to become more responsive 
to the changing labour markets. Policy actions also need to include increasing the attractiveness 
of the teaching profession and boosting the quality  and inclusiveness of teaching. By 2035, 
more  than  half  of  new  job  openings  will  be  in  highly  skilled  occupations24,  but  the  current 
supply of STEM skills is insufficient to meet the growing demand. STEM needs to become a 
strategic priority in education and skills policies across all levels. At EU level, the Union of 
Skills  initiative 25  focuses  on  building  skills,  regular  upskilling  and  reskilling,  as  well  as 
mobility  of  skills  and  workers.  The  Action  Plan  on  Basic  Skills  invites  Member  States  to 
support underachieving pupils. Significant effort to address skills shortages is also underway 
with  the  help  of  cohesion  policy  and  the  RRF,  with  all  Member  States  implementing  EU 
supported measures on skills, adult learning, education and training. The EU and the Member 
States should also continue to work together to expand the use of micro-credentials and set up 
a  Skills  Guarantee  pilot  for  workers  in  sectors  undergoing  restructuring  or  at  risk  of 
unemployment. 

Europe’s  unique  social  market  economy strongly  relies  on  resilience and  fairness.  The 
European  Pillar  of  Social  Rights  remains  central  to  shaping  a  stronger  and  more  inclusive 
Europe.  Member  States  have  included  relevant  reforms  and  investments  in  their  RRPs, 
focusing  in  particular  on  the  strengthening  of  social  services  and  healthcare  facilities,  the 
inclusion  of  vulnerable  groups,  the  modernisation  of  the  social  benefits  systems  and  the 
digitalisation of healthcare. While the share of people at risk of poverty or social exclusion has 
slightly declined recently, it is important to address the still high poverty rates for vulnerable 
groups  and  children,  as  well  as  the  significant  regional  disparities.  Intensive  efforts  will  be 
needed to achieve the EU Pillar’s headline target of reducing poverty or social exclusion by at 
least 15 million people by 2030, including at least 5 million children. In light of demographic, 
labour  market  and  social  challenges,  the  2025  CSRs  stress  the  need  to  have  adequate  and 
efficient  social  protection,  inclusion  and  pension  systems  in  place,  and  to  foster  access  to 
affordable  housing,  and  social  services.  It  is  also  important  to  ensure  non-discrimination, 
promote gender equality and improve equality mainstreaming. Faced with increasing health 
and long-term care demand, Member States also need to build resilient health and long-term 
care systems, including by shifting towards a preventive and primary healthcare model. The 
risk of health emergencies is rising, making it imperative for the EU to further strengthen and 
consolidate  its  health  security  preparedness  and  response  capabilities 26 .  To  complete  the 
European Health Union, the EU is also acting on initiatives such as the Critical Medicines Act 
to  improve  the  supply  and  production  of  critical  medicines.  A  fair  and  inclusive  EU  also 
requires that the benefits of the green and digital transitions be shared across society. It means 
supporting regions and communities that are disproportionately impacted by these transitions. 
The Just Transition Fund is supporting a fairer  transition, and the Social Climate Fund will 

23 Eurobarometer 529, 2023. 
24 Estimated as part of the CEDEFOP’s skills intelligence project ”Skills Forecast” Skills Forecast | CEDEFOP 
25 Union of skills - European Commission. 
26 In light of evolving climate, geopolitical, and security challenges,  the Preparedness Union Strategy includes 
policy actions which will support and complement Member States in reinforcing preparedness efforts 

15 

 
 
provide dedicated funding to support the most affected. The Commission will put forward a 
new action plan on the implementation of the European Pillar of Social Rights, complemented 
by an EU Anti-Poverty Strategy. 

Box 4: Analysis of upward social convergence in line with the Social Convergence 
Framework 

The Commission has assessed the existence of challenges to upward social convergence 
in  10  Member  States  in  line  with  the  Social  Convergence  Framework  (SCF),  which 
entails  a  two-stage  country-specific  analysis  of  risks  and  challenges  to  upward  social 
convergence27. In the first-stage analysis, presented in the 2025 Joint Employment Report28, 
labour market, skills and social policies were analysed for all Member States. A total of 10 
Member  States  (Bulgaria,  Estonia,  Greece,  Spain,  Croatia,  Italy,  Lithuania,  Luxembourg, 
Hungary  and  Romania)  were  identified  as  presenting  potential  risks  to  upward  social 
convergence.  A  second-stage  analysis  for  these  10  countries  was  published  on 
11 April 202529, 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. Overall, the second-stage analysis 
identified  challenges  to  upward  social  convergence  for  three  Member  States  (Greece, 
Romania and Italy)30. 

The analysis of upward social convergence points to horizontal challenges in all three 
policy areas. The analysis points to further measures to boost skills acquisition to lay the 
foundations  for  skills  development  and  address  skills  and  labour  shortages.  While  labour 
markets remain strong overall, the analysis highlights the need to more effectively integrate 
all population groups in the labour market. At the same time, income inequality and risks of 
poverty or social exclusion require very close policy attention, also against the background 
of the demographic challenge, while keeping to adequate and sustainable social protection 
and inclusion systems.  

The findings of the social convergence analysis are reflected in the country reports and 
have informed the 2025 European Semester. This analysis has fed into the multilateral 
surveillance reviews in the relevant Committees of the Council. 

Box 5: Housing in Europe – policy challenges  

Developments in the housing market have significant economic and social implications. 
Housing makes a sizeable contribution to the EU’s economy, with the construction sector 
representing approximately 5% of GDP in 2024. Housing costs also consume a large share 
of households’ income, close to 20% in 2024 and even higher for vulnerable groups, and 
their level significantly impacts household budgets and living standards. Developments in 
housing  and  mortgage  markets  have  a  strong  impact  on  economic  cycles  and  financial 
stability. High prices and rents can negatively affect labour and residential mobility, both 
within and between countries, and also affects the capacity of persons with disabilities to live 

27 See Regulation (EU) 2024/1263, Article 3 and the underlying recital.  
28 Joint Employment Report 2025, as adopted by the EPSCO Council on 10 March 2025. 
29 SWD(2025) 95 – Second-stage country analysis on social convergence in line  with the Social Convergence 
Framework (SCF), 2025. 
30 In 2024, the Member States identified were Bulgaria, Romania and Italy. 

16 

 
 
 
independently. In turn, this can hamper the efficient allocation of labour, contribute labour 
shortages and constrain overall productivity.  

Europe suffers from a large gap between a strong demand for housing and insufficient 
supply, which results in high prices. Between 2019 and 2024, the number of permits issued 
for construction of new  residential  buildings decreased by 14%. At the same time,  house 
prices  grew  by  27%.  House  prices  are  estimated  to  be  overvalued  in  about  two  thirds  of 
European  countries.  Housing  markets  are  particularly  tight  in  capitals,  growth  poles  and 
tourist areas. In addition, availability of social housing is declining while homelessness is 
increasing. 

Reforms and investments are needed to ensure more affordable housing. Housing policy 
remains primarily the responsibility of Member States, regions and cities, but a determined 
approach  is  needed  at  all  levels.  The  RRF  is  supporting  significant  investments  (around 
EUR 20 billion)  in  this  area,  and  reforms  on  housing  affordability  and  availability.  The 
Commission proposed in the mid-term review of cohesion policy to double the allocations 
for  housing  to  reach  at  least  EUR  15  billion.  As  part  of  this  Spring  Package,  specific 
recommendations  are  issued  on  tackling  availability  in  a  number  of  countries  where  the 
situation is especially acute. To ensure sufficient and adequate supply of housing, policies 
should target long-term structural barriers such as insufficient investments, taxation, zoning 
policies and labour shortages in construction and should streamline rules and regulations. 
Increasing the supply of affordable housing and social housing is needed to help meet the 
housing  needs  of  vulnerable  groups,  as  well  as  low  and  middle-income  households  that 
cannot  access  housing  at  market  conditions.  The  European  Affordable  Housing  Plan, 
planned  for  2026,  will  aim  to  offer  operational  recommendations  to  support  investments, 
policy reforms and best practices.  

4.  CONCLUSION 

To drive long-term prosperity and resilience, the EU is aligning its economic governance 
with  a  renewed  focus  on  competitiveness. The  Competitiveness  Compass  defines  the 
Commission’s priorities for the next five years, setting out a clear roadmap to strengthen the 
EU’s economic resilience and global standing. The European Semester is a key mechanism for 
delivering  on  these  priorities,  supporting  Member  States  in  aligning  national  reforms  and 
investments with the EU’s common objectives, ensuring consistent implementation across all 
levels of governance. 

The Commission calls on the European Council to endorse and on the Council of the EU 
to adopt the Commission recommendations for the 2025 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.

17 

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

18 

 
19 

MSScience and innovative ecosystems  Innovation, startups and scaleupsDigitalisation of businessesDecarbonisation, renewable energy and energy affordabilityEnergy efficiencyEnvironmental policy & resource managementTransportBuild-up of defence capabilitiesEnergy security and infrastructureClimate adaptationDigital connectivity, infrastructure & market functioningRegulatory and administrative burden reductionQuality of law makingPublic administrationDigitalisation of  public administration and public servicesBusiness environment (incl. SME policies)Single market, competition &  state aidState-owned enterprisesPublic procurement & concessionsJustice systemCorruptionAnti-money launderingAccess to finance & growth financing (incl. CMU)Financial services and financial stabilityPrivate sector debt & insolvency frameworkSkills, Vocational Education and Training & adult learningEducation & Early childhood education and careActive labour market policies, Functioning of the labour market & Wages & wage settingNon-discrimination and equal opportunitiesHealthcare & long-term careHousingPension systems  and active ageingPoverty, social inclusion &  social protectionRegional development & local public servicesBudgetary framework and fiscal governanceTaxation policyTax administration, tax evasion &  tax avoidanceBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEMacro-fiscalSecuritySkills, quality jobs and social fairnessInnovationDecarbonisation and competitivenessSimplificationSingle market, competition & state aid Financing 
 
 
APPENDIX 2 – PROGRESS IN IMPLEMENTING THE CSRs  

The  2025  European  Semester  takes  stock  of  the  Member  States’  policy  action  to  address 
structural  challenges  identified  in  the  country-specific  recommendations  (CSRs)  adopted 
since 2019. The 2025 assessment of CSRs implementation considers the policy action taken by 
the Member States to date (31), taking into account measures taken as part of the implementation 
of  the  RRF  as  well  as  the  commitments  undertaken  in  the  RRPs  and  the  medium-term  fiscal 
structural plans, depending on their degree of implementation. The assessment reflects the current 
stage of implementation, rather than the level of progress that could be achieved assuming full 
implementation  of  the  plans  ( 32 ).  The  2025  CSR  assessment  covers  the  2019-2023  CSRs 
(multiannual assessment) and the assessment of 2024 CSRs (annual assessment). 

Figure  2:  Implementation  of  2019-2024 
CSRs:  annual  assessment 
in  each 
consecutive  year  versus  implementation 
to date 

Figure 
1:  Current 
implementation of 2019-2023 CSRs 

level 

of 

Full Implementation
7%

Substantial 
Progress
15%

No 
Progress
3%

Limited 
Progress
25%

Some Progress
50%

Note:  The  multiannual  assessment  in  Figure  1  looks  at  implementation  of  2019-2023  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 are considered no longer relevant for the 2025 CSR assessment. 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.  

31 Including policy action reported in the CSR database, in the annual progress reports, 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).  
32 In the context of the RRF, 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 to address the challenges behind the CSRs. The same approach 
applies to reforms and investments included in the medium-term fiscal structural plans. 

20 

0%20%40%60%80%100%20192020202220232024Annual assessment (in year +1)Multiannual assessment (in June 2025)Average of annual assessmentAverage of multiannual assessment 
 
 
 
 
From a multiannual perspective, at least some progress has been achieved for 72% of the 
2019-2023  CSRs  (see  Figure  1).  In  last  year’s  assessment,  68%  of  the  2019-2023  CSRs  were 
showing at  least  some progress.  Progress  was  particularly  strong in  the 2019-2022 CSRs, 75% 
show at least some progress compared to 70% in 2024. This shows that the RRF, as a performance-
based  instrument,  continues  to  contribute  to  the  implementation  of  relevant  CSRs,  and  will 
continue doing so as additional reforms and investments in the RRPs are undertaken. Nevertheless, 
reform implementation  varies significantly across policy areas.  In recent  years, Member States 
continue to have made most progress on CSRs related to access to finance and financial services, 
followed by the functioning of the labour market, the budgetary framework and fiscal governance, 
and the business environment. On the other hand, particularly slow progress has been made on 
housing, environmental policy, public administration, taxation policy and non-discrimination and 
equal opportunities. 

Progress in the implementation of CSRs adopted in 2024 has also been substantial. Member 
States have made at least “some progress” in 51% of the recommendations addressed to them in 
October 2024 (Figure 2). This represents a slight decrease compared to annual progress achieved 
in 2024 on CSRs adopted in July 2023. Considering the policy areas under which a significant 
number of Member States received a recommendation in 2024, overall, most progress has been 
achieved  on  budgetary  framework  and  fiscal  governance,  followed  by  access  to  finance,  the 
functioning of the labour market and skills, vocational education and training. By contrast, less 
progress has been made in addressing recommendations on public administration, environmental 
policy, pension systems and research and innovation. 

The results of the 2025 CSR assessment, together with those of previous years, will be available 
on the Commission website. 

21 

 
 
APPENDIX 3 – EU-WIDE PROGRESS ON SDG IMPLEMENTATION  

Note: The figure above shows the pace at which the EU has progressed towards each of the 17 goals over the most recent five-
year period of available data. 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). 

22 

 
 
 
How has the EU progressed towards the SDGs?  

Significant progress was made towards the objectives and targets related to reduced inequalities 
(SDG 10), decent work and economic growth (SDG 8) and quality education (SDG 4). The EU 
has also made progress towards most of the other SDGs, but at a slower pace. Among the group 
of goals with moderate progress, the EU performed best for gender equality (SDG 5), responsible 
consumption and production (SDG 12), industry, innovation and infrastructure (SDG 9) and zero 
hunger (SDG 2). By contrast, the assessment shows no significant progress for life below water 
(SDG 14), due to the slow expansion of marine protected areas as well as the worsening health of 
the ocean. A movement away from the sustainable development objectives was observed for clean 
water  and  sanitation  (SDG  6)  and  life  on  land  (SDG  15).  Progress  towards  SDG  6  has  been 
unfavourably affected by water stress, whereas development in SDG 15 is negatively impacted by 
land degradation and loss of biodiversity.

23 

 
APPENDIX  4  –  FINDINGS  OF 
IMBALANCES IN MEMBER STATES 

IN-DEPTH  REVIEWS  OF  MACROECONOMIC 

Imbalances or excessive imbalances have been identified in 7 out of the 10 Member States 
for which an in-depth review was carried out. The in-depth review analysis looked at the gravity 
of  the  vulnerabilities,  their  recent  and  prospective  evolution  and  related  policy  responses.  This 
year, the in-depth review analysis has again been presented in advance of the European Semester 
Spring  Package  to  facilitate  more  in-depth  multilateral  discussions  with  Member  States  before 
concluding on the findings of imbalances and the subsequent formulation of the country-specific 
recommendations33. 

Over  the  past  year,  economic  developments  have  attenuated  the  gravity  of  some  of  the 
long-standing vulnerabilities that underlie imbalances in several countries. Several countries 
saw  a  small  strengthening  of  their  economic  growth  in  2024,  even  if  some  others  experienced 
stagnant activity or even a recession. Employment rose and unemployment remained at or close to 
historical lows. Inflation and cost pressures have receded further and – until recently – more swiftly 
than anticipated. Financial conditions loosened over the course of 2024 after the marked tightening 
of the previous two years. Prospects for 2025 are for a continuation of the similar growth rates as 
in 2024 for the EU and the euro area as a whole, with significant downside risks, and a potential 
acceleration in 2026. 

Uncertainty  has  risen  significantly  with  a  changing  geo-political  and  trade  context, 
compounding risks around imbalances. Economies more exposed to trade are more at risk in 
case of a protracted  weakness  or even a retrenchment  in  global trade, following  some years of 
sluggishness in trade, especially in manufacturing goods. Fiscal expansions – primarily to support 
higher spending on defence – are on the cards for the medium term although detailed plans have 
not  been  outlined  in  all  cases.  The  impact  of  all  those  developments  is  difficult  to  predict,  as 
settings are rather unstable and the outcomes unclear, but require a continued close monitoring of 
risks with the forward-looking perspective being important in that respect.  

The  paragraphs  below  review  the  most  relevant  vulnerabilities  and  prospects  at  this  juncture, 
particularly in the 10 Member States subject to an in-depth review this year. 

Inflation  is  past  its  peak,  but  inflation  differentials  remain  sizeable  in  several  cases.  The 
inflation slowdown  continued across the EU in  2024 and early 2025, but  some Member States 
have continued recording clearly higher-than-average inflation, both within and outside the euro 
area. As a result, significant accumulated inflation divergences have widened, including in some 
cases where the economic recovery has been limited. Unit labour cost decelerated in 2024, but unit 

33 The 10 IDRs were shared with Member States in two batches, one in March (for Cyprus, Germany, Greece, the 
Netherlands), another one in April (for Estonia, Hungary, Italy, Romania, Slovakia, Sweden); they were all published 
in May: In-depth reviews - European Commission (europa.eu). 

24 

 
 
labour cost growth remained significant in several cases, against a backdrop of tight labour markets 
and low productivity growth.  

Price and cost pressures are expected to ease further in the near term, but divergences are 
likely to continue. Significant declines in the prices of energy and other commodities, alongside 
the appreciation of the euro and of most other EU currencies, should help reduce inflation. Weak 
demand may further limit price pressures in several countries. Unit labour cost growth is expected 
to moderate further with decelerating wage growth, as the losses of purchasing power to inflation 
of earlier years have been recouped. Recent hikes in indirect taxation are supporting high inflation 
in  some  cases.  Nevertheless,  these  effects  are  temporary  and  not  anticipated  to  impact  export 
competitiveness  adversely.  However,  it  is  expected  that  accumulated  and  inflation  differentials 
recorded  in  some  countries  may  keep  widening.  Lasting  divergences  in  costs  and  prices 
developments can be risky for the external positions, and some countries that have been recording 
larger  competitiveness  losses  have  more  fragile  external  accounts.  At  the  same  time,  inflation 
divergences can affect the effectiveness of the monetary stance, especially within the monetary 
union. It therefore remains important to bring domestic demand to more sustainable levels and to 
improve market functioning in some countries.  

Some  large  current  account  deficits  and  surpluses  remain,  reflecting  domestic  demand 
dynamics. In 2024, current accounts generally increased further, helped by further gains in terms 
of trade, including additional falls in energy prices. Different patterns were observed across the 
EU due to domestic demand dynamics. Some countries exhibit large current account deficits with 
limited improvements, often coinciding with strong domestic demand. In a few other cases, the 
headline figures improved  in  times of weak GDP growth,  which  may mask  weaker underlying 
external accounts.  In some cases, deficits are worse than before the pandemic and weaker than 
what  the  fundamentals  of  those  economies  would  suggest.  In  some  of  those  countries,  large 
government deficits account for much of the economy’s external borrowing needs. At the same 
time, significant current account surpluses have not changed much despite weak global trade, while 
domestic demand remained stagnant in some of those countries.  

Changes in current account balances are forecast to be limited, but uncertainty is high. The 
appreciation  of  the  euro  and  other  EU  currencies  should  cheapen  imports,  while  the  prices  of 
energy and some other commodities are projected to fall and further assist current accounts. On 
the contrary, global trade is expected to be further dampened, and no major changes are expected 
in domestic demand dynamics in the short term, such that most of the large current account deficits 
are expected to narrow only mildly and long-lasting large current account surpluses to change only 
marginally. Uncertainty is exceptionally high with a changing trade context. Member States with 
large  surpluses  may  be  potentially  more  impacted  by  a  retrenchment  in  trade.  However,  their 
imports  are  set  to  fall  along  with  lower  exports,  as  domestic  demand  may  also  be  affected. 
Countries highly integrated in global value chains are likely to be more affected. In parallel, it may 

25 

 
be more difficult for large debtors to growth out of debt by means of higher exports and to finance 
significant external borrowing needs.  

The more negative net international investment positions have improved further, supported 
by  nominal  GDP  growth,  but  denominator  effects  are  stalling.  Most  of  the  more  negative 
positions  improved  again  in  2024  on  account  of  marked  nominal  GDP  growth  and  despite 
significant  current  accounts  deficits.  However,  several  negative  net  international  investment 
positions-to-GDP ratios are expected to stagnate this year and next, or improve much less strongly, 
reflecting lower nominal GDP growth on top of the persistence of large external borrowing needs. 
In some cases, moderately negative net international investment positions may deteriorate where 
the current account deficit is very significant. Large positive positions are likely to further increase 
with the continuation of large current surpluses. 

House  prices  gained  dynamism  during  2024  on  account  of  rising  incomes  and  easing 
financing  conditions,  following  two  years  of  muted  or  negative  growth.  House  prices  rose 
nearly everywhere over the course of 2024. This was also the case in some countries where house 
prices have seemed to be overvalued for years, increasing the risks of overvaluation again, after 
some corrections in recent years. Housing demand was underpinned by rising household incomes, 
which in some cases grew more than house prices, and by lower interest rates. At the same time, 
the construction of new homes continued falling in several countries, compounding price pressures.  

House  prices  are  expected  to  keep  rising  driven  by  long-standing  structural  effects.  The 
loosening  of  financial  conditions  for  households, together  with  continued  growth  of  household 
incomes, should continue favour borrowing for house acquisition and support housing demand. 
Taxation policies supporting  demand and  dysfunctional  rental markets  have not  changed much 
and reinforce debt-financed home ownership in various countries. At the same time, bottlenecks 
to housing supply remain much unaddressed, while the weak supply of recent years and falls in 
building  permits  suggest  that  housing  shortages  will  linger  and  put  upward  pressure  on  house 
prices. 

Deleveraging  by  households  and  non-financial  corporations  has  continued  but  slowed,  as 
denominator  effects  weakened  with  lower  inflation  and  borrowing  edged  up.  In  2024,  in 
several countries, household and corporate debt as a share of GDP reached their lowest levels in 
years.  However,  these  falls  in  debt-to-GDP  ratios  were  often  less  pronounced  than  in  previous 
years as lower inflation yielded more muted denominator effects. In  addition,  borrowing flows 
have edged up somewhat,  especially  for  households,  against a backdrop  of gradually  softening 
financing conditions and rising incomes.  

Government debt ratios have kept on declining in several cases but in some countries, they 
have  increased again recently.  High government debt  ratios  decreased  in  some countries and 
edged up and exceeded pre-pandemic readings in other cases. Denominator effects weakened with 

26 

 
less  favourable  growth-interest-rate  differentials.  Significant  deficits  were  recorded  in  some 
countries,  while  others  presented  balanced  fiscal  positions  or  even  surpluses.  There  are  a  few 
countries with low or moderate debt that are experiencing rising debt ratios due to high deficits. 
Borrowing conditions for governments improved or were stable with most intra-euro area spreads 
narrowing last year but long-term interest rates increased in 2025. For some Member States outside 
the euro area, spreads on government bonds increased in 2024 and early 2025; as borrowing in 
foreign  currencies  is  significant  in  some  of  those  cases,  there  are  risks  should  exchange  rate 
volatility emerge. 

Deleveraging in both the private and government sectors is expected to slow down or reverse 
in the future. Private sector borrowing is anticipated to continue edging up with easier financing 
conditions,  slowing  down  debt  deleveraging  or  even  halting  it.  In  the  absence  of  an  effective 
implementation of policy measures, fiscal deficits are set to remain sizeable in some cases, adding 
to  government  debt  ratios.  Some  fiscal  expansions  have  been  outlined  recently,  including  for 
defence spending, but details have not always been made known and have not been reflected in 
forecasts. 

The  banking  sector  has  strengthened  further.  Banks  have  continued  weathering  the  weak 
momentum of the recent years well. In 2024, capital ratios generally edged up again or remained 
at  high  levels,  while  profitability  stayed  high.  Non-performing  loans  (NPLs)  fell  further  or 
stabilised  where  they  used  to  be  more  significant;  in  countries  where  they  are  moderate,  they 
stabilised  or  increased  slightly.  However,  NPLs  held  by  servicers  outside  the  banking  sectors 
remain large in a few countries. Exposure to commercial real estate persists as a concern in some 
cases where that sector accounts for a significant share of corporate debt. Sizeable bank exposures 
to the sovereign debt of their home country have declined in some instances – while remaining 
significant – but have increased further in most other cases. Going forward, the recent loosening 
of financial conditions may be putting an end to rising interest rate margins. While this may limit 
profitability, lending volumes may increase somewhat. 

27 

 
 
 
Table 1: MEMBER STATES CLASSIFICATION UNDER THE MIP  

2024 outcomes 

2025 outcomes 

No 
imbalances 

ES, FR, PT 

CY, DE, EE 

Imbalances 

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

EL, HU, IT, NL, SE, SK 

Excessive 
imbalances 

RO 

RO 

p.m.: No IDR 

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

AT, BE, BG, CZ, DK, ES, FI, FR, HR, 
IE, LT, LU, LV, MT, PL, PT, SI 

Note: Member States with classification changed between 2024 and 2025 are marked in bold in both columns. 

Member States not experiencing imbalances 

Estonia is not found to experience imbalances. Vulnerabilities relating to deteriorating price and 
cost competitiveness have been present in recent years amid a protracted recession, and house 
prices have grown considerably, but overall vulnerabilities seem to be contained at present. Wages 
and prices have grown strongly for a number of years, and core inflation remained well above the 
euro area average in  early 2025, driven by wage growth, especially in the public sector. These 
price and cost pressures are impairing the competitiveness position of the economy. While the loss 
of cheap energy and other inputs following Russia’s war of aggression against Ukraine were the 
triggers for sustained price growth in 2022, inflationary pressure is now mostly domestic. Strong 
domestic  demand  and  a  tight  labour  market  enabled  wages  to  grow  quickly  at  a  time  of  weak 
productivity. Public wages, especially for teachers and health care staff, have increased over the 
last  years,  catching  up  from  relatively  low  levels  in  the  past.  Part  of  the  high  inflation  can  be 
attributed to increases in indirect taxes. Estonian exports have lost some market shares in the past 
two years. The current account deficit has shrunk recently, owing to a recession at home; the net 
international investment position is only moderately negative and risks to external sustainability 
appear  limited.  House  prices  have  grown  considerably  in  recent  years  and  are  estimated  to  be 
overvalued, but the risk to financial stability associated with mortgage lending remains low. Some 
past  policy  actions  have  contributed  to  this  situation,  in  particular  by  having  fuelled  domestic 
demand once the worst of the pandemic crisis was behind. These included the release of the second 
pillar pension funds, which boosted prices, including house prices. In recent years, the increase in 
public salaries and in minimum wages have coincided with the recession and led to higher overall 
wage  growth  across  the  economy.  Measures  to  improve  labour  productivity  and  the  business 
tax-  and 
environment 

recently  announced  several 

limited.  The  government 

remain 

28 

 
  
 
expenditure-reducing policy actions for 2026 that could lower inflationary pressures and alleviate 
some labour cost pressures. 

Germany  is  no  longer  experiencing  imbalances.  Vulnerabilities  related  to  the  large  current 
account surplus, which had cross-border relevance, have declined over the years, while significant 
policy progress has very recently been announced. The current account surplus came below 6% 
of GDP in recent years, after having reached a trough in 2022 on account of exceptionally high 
energy  prices.  The  reduction  of  the  current  account  is  largely  reflecting  an  adverse  external 
backdrop,  whereas  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,  whereas 
actual  investment  has  receded  in  real  terms  in  recent  years.  Combined  with  other  structural 
challenges,  low  public  and  private  investment  provided  amongst  the  lowest  contributions  to 
potential GDP growth in the EU. Real wages have reached their pre-pandemic level during 2024 
following  moderate  increases  in  nominal  wages.  However,  considerable  policy  announcements 
were made in early March 2025, following the parliamentary elections, including the revision of 
the  Constitutional  budgetary  framework.  This  policy  package  marks  a  major  step  and  a  clear 
acceleration from recent patterns, which, if implemented, will lead to significantly higher defence 
spending and infrastructure investment.  

Cyprus is no longer experiencing imbalances. Vulnerabilities relating to external and private debt 
are receding, in part on account of strong economic growth, and government debt reduction is 
further supported by continued budgetary surpluses; the current account deficit remains sizeable. 
Cyprus has made important progress in implementing measures that address its vulnerabilities. 
Household and non-financial corporate debt have been falling as a share of GDP, predominantly 
thanks to strong denominator effects on account of high nominal GDP growth. A large share of 
corporate debt is owed by special purpose entities, whose lenders are located outside of Cyprus, 
and which pose limited risks to the economy. Additionally, NPLs held by banks has been declining 
significantly due to sales, write-offs and repayments. NPLs held by credit-acquiring companies 
are also decreasing leading to further deleveraging. The government debt is decreasing at a fast 
pace and Cyprus is forecast to sustain budgetary surpluses. Despite declining in 2024, the current 
account  deficit  remains  elevated  and  is  expected  to  improve  only  marginally;  the  negative  net 
international investment position remains sizeable but is significantly inflated due to the presence 
of  special  purpose  entities  without  significant  direct  links  to  the  domestic  economy.  Cyprus  is 
making  policy  progress  to  address  its  vulnerabilities.  In  particular,  the  foreclosure  framework 
became  fully  operational  in  2024,  and  legislation  aiming  to  facilitate  the  NPLs  resolution  is 
expected to ease household indebtedness and boost their savings. 

29 

 
 
 
Member States experiencing imbalances 

Greece  continues  to  experience  imbalances.  Vulnerabilities  relating  to  high  government  and 
external  debt,  non-performing  loans,  and  unemployment  continue  to  recede,  while  the  current 
account deficit remains high. The government debt-to-GDP ratio declined substantially again in 
2024,  but  despite  sustained  reductions  it  remains  the  highest  in  the  EU.  Budgetary  surpluses 
together with GDP growth are set to ensure continued debt reductions. The current account deficit 
increased  marginally  in  2024,  well  above  its  pre-pandemic  level,  and  it  is  expected  to  remain 
unchanged at high levels this year and next. The net international investment position improved 
further in 2024, although it remains the most negative in the EU, and is not expected to improve 
materially further on account of the large current account deficits and of faltering denominator 
effects. The labour market continues to improve; unemployment is  falling but is still high. The 
stock of NPLs in banks’ balance sheets decreased further in 2024, but the resolution of NPLs held 
by  servicers  remained  sluggish,  continuing  to  burden  corporate  and  household  balance  sheets. 
Greece has made strong policy progress in addressing its vulnerabilities. In 2024, measures were 
taken to improve tax collection and to further support the enforcement of legacy NPLs. Progress 
was achieved in the judicial sector too. Sustaining reform momentum under and beyond the RRP 
remains key to address the structural weaknesses of the economy, and increasing productivity is 
key to enhance long-term growth prospects, which would facilitate the unwinding of imbalances. 

Italy  continues  to  experience  imbalances.  Vulnerabilities  related  to  high  government  debt  and 
weak productivity growth, which have cross-border relevance, remain. In 2024, the government 
debt ratio stood above its pre-pandemic level and increased, reversing the downward path observed 
in the post-2020 period, even if the deficit lowered, as nominal GDP slowed down markedly, and 
debt-increasing  stock-flow  adjustments  became  sizeable  due  to  the  lagged  impact  on  cash 
borrowing of the tax credits for housing renovations of previous years. Labour market indicators 
have continued to improve. Italian banks have significantly strengthened their asset quality and 
profitability; their exposure to sovereign risk and the stock of state-guaranteed loans have receded 
somewhat  but  remain  significant.  Some  policies  have  already  addressed  the  identified 
vulnerabilities, yet a continued and effective implementation of reforms and investments, notably 
those in the RRP and the medium-term fiscal-structural plan, together with a prudent fiscal stance 
remain crucial. A full implementation of the measures in Italy’s medium-term fiscal-structural plan 
are key to ensure the high government debt ratio would not rise further over the medium term. 
Several policies have been implemented to foster fiscal sustainability, like enhancing the annual 
spending  review,  permanently  reducing  the  tax  wedge,  and  revising  tax  expenditures.  Reforms 
also  led  to  significant  progress  in  the  insolvency  framework  and  NPLs  market.  RRP  measures 
support productivity gains and help further exploiting Italy’s labour potential, which will facilitate 
public debt deleveraging. The effective implementation of those measures is essential. 

30 

 
 
 
Hungary continues to experience imbalances. Vulnerabilities primarily related to competitiveness 
and  government  financing  needs  remain  relevant.  Rapid  wage  growth  has  compromised  cost 
competitiveness in recent years and inflationary pressures stronger than in the rest of the EU persist, 
while the economic recovery is slow and subject to downside risks. The external account recorded 
a surplus in 2024, but policies boosting domestic demand pose risks to external sustainability. The 
government deficit decreased in 2024 due to lower investment and a fall in spending on energy 
subsidies but remains high and is not forecast to improve much this year or next. The government 
debt  ratio  is  not  falling,  and  debt-servicing  costs  and  gross  financing  needs  remain  high.  The 
bank-sovereign  nexus  has  deepened  due  to  tax  incentives  for  domestic  banks  to  purchase 
government debt. House prices accelerated markedly in 2024 driven by strong demand, which has 
been compounded by demand-supporting government measures. Policy progress has been limited. 
Hungary will need to introduce permanent fiscal measures  and rely less on temporary windfall 
profit taxes or cuts in investments. Monetary policy has been tight, but its effectiveness has been 
weakened  by  government  interventions:  poorly  targeted  subsidies  and  loans  to  household  and 
corporations persist and controls of lending rates limit the effectiveness of monetary policy. At the 
same  time,  housing  subsidies  and  preferential  lending  schemes  continue  to  distort  the  housing 
market and exacerbate house price pressures. 

The Netherlands continues to experience imbalances. Vulnerabilities related to high private debt 
in  a  context  of  an  overvalued  housing  market,  and  the  large  current  account  surplus  remain 
relevant,  despite  some  improvements  including  greater  dynamism  of  domestic  demand;  these 
vulnerabilities have cross-border relevance. The current account surplus is among the largest in 
the euro area and is expected to remain high. From a savings-investment perspective, all sectors 
of the economy are contributing to the surplus. The corporate sector’s surplus is to a significant 
degree driven by the activities of the non-financial corporations abroad and the contribution of 
multinationals’  retained  earnings.  Even  though  consumption  and  investment  growth  were  key 
drivers of the recovery from the pandemic, the Netherlands is lagging the euro area in terms of the 
level of corporate and public investment. Household debt remains among the highest in the EU 
but has decreased significantly due to denominator effects while household borrowing recovered 
strongly  in  2024. House prices  have edged up at increasing  rates last year and  are expected to 
increase  strongly  also  in  2025  as  significant  structural  challenges  remain  unaddressed.  Policy 
progress has been limited. Some measures have been taken that could decrease the current account 
surplus, but their overall impact is not expected to be significant. Some measures have been taken 
to  help  boost housing supply, but  there has only  been limited action to  decrease incentives for 
household borrowing. The recent introduction of rent limits poses risks to the development of the 
private and social rental markets. 

31 

 
 
 
Slovakia  continues  to  experience  imbalances.  Despite  some  improvements,  the  vulnerabilities 
related to cost competitiveness, external balance, and housing market persist, while improvements 
in household indebtedness seem to be stronger, and policy action has been limited. Inflation and 
unit labour costs growth decreased significantly but differentials, including of core inflation, with 
the rest of the euro area and the EU persist. After the marked improvement of 2023 due to lower 
energy  prices,  the  current  account  deficit  worsened  somewhat  in  2024  on  account  of  sluggish 
exports  and  rising  imports  amid  a  re-surgent  domestic  demand.  The  current  account  deficit  is 
expected to  further increase this  year.  In parallel,  the high  government  deficit is  not  declining. 
Additionally, house prices accelerated again in the course of 2024, while the decline of residential 
construction exacerbates an already tight  housing supply. After several  years of strong  rises in 
household debt, higher interest rates slowed down the demand for mortgages in the past two years 
and household debt ratios decreased in recent years. However, as financial conditions have eased 
in the course of 2024 and early 2025, household borrowing has been rebounding lately and has 
been further supported by increasing real disposable income in a context of a tight labour market. 
Denominator effects are becoming less significant, such that household debt ratios may stabilise 
or fall less in the near term than before, while remaining still below the EU average in a context 
of  a  sound  banking  sector.  Policy  progress  has  been  limited.  In  order  to  curb  inflation,  energy 
support measures for households have been prolonged. Yet this untargeted measure became one 
of the drivers of the sizeable government and current account deficits. Adoption of measures to 
improve labour productivity and the business environment remain limited. An amendment to the 
Construction Act, aimed at streamlining construction procedures, became effective this April. 

Sweden continues to experience imbalances. Vulnerabilities related to its real estate market and 
high  private  debt  remain  relevant  despite  some  recent  moderation,  and  the  identified 
vulnerabilities  persist  in  the  absence  of  firm  action.  Despite  some  moderation,  household  and 
corporate debt-to-GDP readings remain among  the highest in  the EU,  while house prices were 
constant in nominal terms but continue to be overvalued. Tightened financial conditions has also 
led to  a slump in housing construction and put  additional pressure on households and business 
expenditure,  and  the  financial  sector  continues  to  be  highly  exposed  to  the  real  estate  sector, 
including  commercial  real  estate.  Policy  progress  has  been  limited.  Policy  settings  continue  to 
favour debt-financed house acquisition while housing supply shortages linger. Taxation continues 
to incentivise debt-financed house ownership through the significant tax deductibility of mortgage 
interest  payments.  Measures  that  increase  housing  supply  going  forward  would  help  moderate 
house price growth but are no substitute for reforms addressing the main drivers of household debt. 
The rental market has not yet been reformed. These vulnerabilities may worsen should a re-surge 
in  debt-financed  housing  acquisition  and  house  price  overvaluation  materialise  on  account  of 
macroprudential measures being eased, which seem to be under consideration, on the top of more 
benign financing conditions. 

32 

 
 
 
Member States experiencing excessive imbalances 

Romania  continues  to  experience  excessive  imbalances.  Vulnerabilities  have  increased  as 
Romania’s twin fiscal and current account deficits widened, and cost competitiveness deteriorated 
in 2024. The high government deficit increased in 2024. The continued growth in the government 
deficit,  in  particular  the  increases  in  public  sector  wages  and  pensions,  increased  private 
consumption and the already large current account deficit. Unit labour costs accelerated further in 
2024 after already very high growth rates in earlier years, which eroded cost competitiveness. The 
soundness  of  the  external  financing  mix,  based  on  sizeable  net  FDI  and  EU  funds  that  had 
contained the increase of external debt, weakened in 2024. Only marginal reductions are expected 
for the government and the current account deficits in 2025 and 2026. Unit labour cost growth and 
inflation  are  set  to  decelerate  but  to  remain  large.  Policy  progress  was  minimal  in  2024,  and 
macroeconomic stability risks widened. Political uncertainty increased towards the end of last year 
leaving the country vulnerable to changes in investor sentiment and higher borrowing costs. The 
bank-sovereign nexus is the largest in the EU and increased further in 2024. A significant fiscal 
consolidation package adopted at end-2024, including a freeze of pensions and government wages 
is yet to be complemented by further measures to ensure full compliance with the medium-term 
fiscal-structural plan targets. A reform of the minimum wage setting was adopted in early 2025. 
The implementation  of the medium-term  fiscal-structural  plan and  a tax  reform  in 2025, could 
significantly reduce fiscal vulnerabilities. In addition, structural reforms, and in particular those 
embedded in the RRP, are needed to strengthen competitiveness, export performance and attract 
further EU  funding. However, additional measures are likely  needed. Overall, without resolute 
action on both fiscal and structural reform levers, fiscal and external deficits are likely to remain 
too high, leaving Romania significantly exposed to changes in investor sentiment and exogenous 
shocks. 

33 

 
 
 
APPENDIX  5  –  FISCAL  SURVEILLANCE  UNDER  THE  REFORMED  STABILITY  AND 
GROWTH PACT 

The Spring 2025 European Semester package marks the conclusion of the first complete annual 
cycle  of  macroeconomic  surveillance  under  the  reformed  economic  governance  framework. 
Following its entry into force in April 2024, the new framework reached an important milestone 
in  autumn 2024 with  the submission  by  most Member States of their first medium-term  plans, 
followed by the assessment by the Commission in November and December, and the endorsement 
by the Council in January. The Annual Progress Reports submitted by Member States at the end 
of  April  take  stock  of  the  progress  made  in  the  implementation  of  the  medium-term  plans.34 
Together  with  the  Commission  Spring  2025  Forecast  and  2024  outturn  data  they  provide  key 
inputs  for  the  assessment  of  Member  States’  compliance  with  the  maximum  growth  of  net 
expenditure  recommended  by  the  Council.  For  Member  States  under  the  excessive  deficit 
procedure, this Box and Annex 1 to the Country Report include the assessment of effective action 
to correct their excessive deficits.  

For 22 Member States,  the Commission  has assessed compliance of net  expenditure growth  in 
2025 (and 2024 and 2025 taken together) with the maximum net expenditure growth recommended 
by the Council. For Belgium, Bulgaria and Lithuania, the assessment of compliance is based on 
the net  expenditure path put  forward in  their medium-term  plan and positively  assessed by the 
Commission as being in line with the requirements of Regulation (EU) 2024/1263 and assuming 
their timely endorsement by the Council. For Austria, the assessment is made on the basis of the 
net  expenditure  path  put  forward  in  its  medium-term  plan,  pending  its  assessment  by  the 
Commission, and the endorsement by the Council. For Germany, a full assessment of compliance 
cannot be undertaken for the time being, in the absence of a medium-term plan. The Commission 
expects Germany to submit its plan by end-July 2025.  
Following  the  European  Council  Conclusions  on  European  defence  of  6  March  2025 35 ,  the 
Commission invited all Member States36 to make use of the flexibility provided by the national 
escape clause of the Stability and Growth Pact with a view to facilitating the transition to higher 
levels of defence expenditure. Following the requests by 16 Member States (Belgium, Bulgaria, 
Czechia,  Denmark,  Germany,  Estonia,  Greece,  Croatia,  Latvia,  Lithuania,  Hungary,  Poland, 
Portugal, Slovenia, Slovakia, Finland), the Commission has today adopted recommendations to 
the Council to activate the national escape clause.37 The flexibility under the national escape clause 
allows deviations from the recommended maximum growth of net expenditure of up to 1.5% of 
GDP over the period 2025 to 202838; pending its activation by the Council, the flexibility provided 

34 Romania has not yet submitted its Annual Progress Report.  
35 European Council conclusions on European defence of 6 March 2025, 
https://www.consilium.europa.eu/media/tzkadtec/20250306-european-council-conclusions-en.pdf.   
36 Commission Communication on Accommodating increased defence expenditure within the Stability and Growth 
Pact, C(2025) 2000 final.  
37 The Council and the Commission have also received a request from Germany to activate the national escape 
clause. Since Germany has not yet submitted its medium-term plan, the Commission will assess the request together 
with the assessment of the medium-term plan upon its reception.  
38 In addition, the debt sustainability safeguard and the deficit resilience safeguard will not be taken into account 
when determining the flexibility that can be granted during the activation of the national escape clause. This ensures 
that, the sustainability condition of the national escape clause is applied equally to all Member States. 

34 

 
 
under  the  national  escape  clause  is  already  duly  considered  in  the  assessment  hereunder. 39 
Deviations beyond that amount are taken into account to assess compliance with the rules of the 
Stability and Growth Pact as the recommendations to activate the national escape clause do not 
modify the definitions of government deficit, debt and net expenditure to be compiled and reported.  

ASSESSMENT OF EFFECTIVE ACTION FOR MEMBER STATES UNDER EXCESSIVE DEFICIT 
PROCEDURE 

Eight Member States are in an excessive deficit procedure: Belgium, France, Italy, Hungary, Malta, 
Poland,  Romania  and  Slovakia.  The  assessment  of  effective  action  examines  whether  net 
expenditure growth in  2025 as projected in  the  Commission Spring 2025 Forecast  respects  the 
ceilings recommended by the Council.40 Deviations from these ceilings are cast in annual terms 
(i.e. for 2025) and in cumulated terms (i.e. for 2024 and 2025 taken together).41 The assessment 
takes  already  into  account  the  flexibility  provided  under  the  national  escape  clause  for  those 
Member States where the Commission today recommends to the Council to activate it, assuming 
their timely endorsement by the Council.  

Based on this assessment, for six Member States (Italy, Slovakia, Hungary, Poland, France and 
Malta), the EDP is held in abeyance, subject to the activation of the national escape clause by the 
Council. The assessment is as follows: 

•  For  Italy  and  Slovakia,  net  expenditure  in  2025  is  projected  to  grow  within  the  ceiling 

established by the corrective path.  

•  For Hungary and Poland, net expenditure growth in 2025 is projected to be above the ceiling 
established  by  the  corrective  path.  However,  the  deviations  that  are  projected  by  the 
Commission for these Member States are within the flexibility provided by the national escape 
clause based on current projections for defence spending.  

•  For France and Malta, net expenditure growth is projected to be above the ceiling established 
by the corrective path in 2025 for France and over 2024-2025 for Malta. The deviations do not 
exceed 0.3% (annual) and 0.6% (cumulative) of GDP, respectively, beyond which there would 
be a strong presumption of no effective action. Those Member States are invited to stand ready 
to take further measures to comply with the corrective path. 

39 In practice, the deviation for higher defence expenditure that would be permitted in case of activation of the national 
escape  clause  by  the  Council,  in  line  with  the  Commission’s  recommendations  was  taken  into  account  by  the 
Commission when assessing compliance with the net expenditure path set under the preventive arm (Regulation (EU) 
2024/1263) and when assessing effective action regarding compliance with the corrective path set under the corrective 
arm (Regulation (EC) 1467/97. 
40 For Belgium the assessment of compliance is based on the net expenditure path put forward in their medium-term 
plan and positively assessed by the Commission as being in line with the requirements of Regulation (EU) 2024/1263 
and assuming their timely endorsement by the Council.  
41 For Member States that submitted their medium-term plan this year (Bulgaria, Belgium, Lithuania, and Austria), 
the base year for the plan and/or for the respective recommendation is 2024 (as outturn data are now available) and 
the fiscal adjustment period starts in 2025. As a result, the annual and the cumulated deviation give the same result.  

35 

 
 
 
For Belgium, net expenditure growth in 2025 is projected to be above the ceiling to be established 
by the corrective path recommended by the Commission.42 However, the projected deviation is 
within  the  flexibility  provided  by  the  national  escape  clause  based  on  current  projections  for 
defence spending. 

A further assessment will take place in autumn, and afterwards in spring 2026, when outturn data 
for 2025 are available. 

In  Romania,  net  expenditure  growth  is  projected  to  be  above  the  ceiling  established  by  the 
corrective  path.  In  particular  the  projected  deviation  over  2024  and  2025  taken  together  is 
estimated at 1.7% of GDP. This implies that no effective action has been taken while there are no 
mitigating  relevant  factors.  The  high  net  expenditure  growth  is  leading  to  persistently  high 
government deficits (9.3% in 2024 and, based on the Commission Spring 2025 Forecast, 8.6% of 
GDP in 2025) and an increase in the debt ratio by more than ten points since 2021. There are clear 
risks to the timely correction of the excessive deficit by 2030. Therefore, the Commission is today 
recommending to the Council to adopt a decision that establishes no effective action. This will 
lead to the adoption of a revised recommendation under Article 126(7). The Commission calls on 
Romania to take swift action to comply with the requirements of the excessive deficit procedure. 

ASSESSMENT OF IMPLEMENTATION OF THE MEDIUM-TERM PLANS BY OTHER MEMBER 
STATES 

•  Based on the projections for net expenditure growth in 2025 in the Commission Spring 2025 
Forecast, 12 Member States are projected to be compliant with the recommended maximum 
growth of net expenditure43, subject to the activation of the national escape clause, based on 
current projections of defence spending. 

o  For Czechia, Estonia, Latvia, Slovenia, Finland and Sweden, net expenditure in 2025 

is projected to grow within the ceiling recommended by the Council.  

o  For Austria, net expenditure growth in 2025 is projected to grow within the ceiling in 

its medium-term plan (which is currently being assessed).  

o  For  Bulgaria,  Denmark,  Greece,  Croatia,  Lithuania,  net  expenditure  growth  is 
projected to be above the ceiling recommended by the Council (or the net expenditure 
growth in the respective medium-term plan). However, the deviations that are projected 
for these Member States are within the flexibility of the national escape clause based 
on current projections for defence spending.  

42 On 21 May, the Commission has issued a revised Recommendation for a Council Recommendation under Article 
126(7) TFEU with a view to bringing an end to the situation of an excessive government deficit into Belgium. The 
assessment  of  compliance  for  Belgium  is  reported  against  this  revised  corrective  path,  which  corresponds  to  the 
commitment  for  the  net  expenditure  growth  rate  in  the  medium-term  plan  of  Belgium.  The  latter  was  positively 
assessed by the Commission on 21 May 2025  and is subject to endorsement by the Council in the coming weeks. 
Considering the revision, an assessment against the existing Council Recommendation would be obsolete. 
43 For Bulgaria and Lithuania, the assessment of compliance is based on the net expenditure path put forward in their 
medium-term plan and positively assessed by the Commission as being in line with the requirements of Regulation 
(EU) 2024/1263 and assuming their timely endorsement by the Council. For Austria, the assessment is made on the 
of  the  basis  of  the  net  expenditure  path  put  forward  in  its  medium-term  plan,  pending  its  assessment  by  the 
Commission, and the endorsement by the Council. 

36 

 
 
• 

In two Member States, net expenditure growth in 2025 is projected to be above the ceiling 
recommended by the Council, based on the Commission Spring 2025 Forecast, these Member 
States are therefore also projected to be broadly compliant with the recommended maximum 
growth of net expenditure or with the conditions of the national escape clause, based on current 
projections of defence spending.  

o  For  Portugal  net  expenditure  growth  in  2025  is  projected  to  be  above  the  ceiling 
recommended  by  the  Council.  The  projected  cumulated  deviation  is  below  the 
threshold of 0.6% of GDP44. 

o  For  Spain,  net  expenditure  growth  in  2025  is  projected  to  be  above  the  ceiling 
recommended by the Council (in annual terms), but the deviation does not exceed the 
0.3% of GDP threshold.  

• 

In four Member States (Ireland, Cyprus, Luxembourg and the Netherlands), net expenditure 
growth  in  2025  is  projected  to  be  above  the  ceiling  recommended  by  the  Council  and  the 
deviations  exceed  the  thresholds  for  annual  (Ireland,  Cyprus,  Luxembourg)  and  cumulated 
(Netherlands) deviations. For these Member States, the Commission sees a risk of deviation 
from the recommended maximum growth rates. 

The above presents a preliminary assessment of compliance based on the Commission Spring 2025 
Forecast.  A  further  assessment  will  take  place  in  autumn.  Afterwards  in  spring  2026,  the 
assessment of compliance with the recommended maximum growth rates for net expenditure will 
be based on outturn data for 2025, and deviations from the recommendations will be recorded in 
control accounts. 

The  assessment  of  implementation  of  medium-term  plans  also  needs  to  consider  the  set  of 
investment and reforms underpinning an extension of the respective fiscal adjustment periods. This 
concerns Spain, France, Italy, Finland, Belgium  and Romania. A detailed assessment of the 
state of play of implementation of these commitments is available in Annex 1 to the respective 
Country  Reports.  In  the  case  of  Romania,  the  response  to  the  Council  Recommendation  of  21 
January 2025 so far is deemed to be insufficient. 

ASSESSMENT OF COMPLIANCE WITH THE DEFICIT AND DEBT CRITERIA 

As part of this European Semester Package, the Commission has adopted a Report under Article 
126(3) TFEU for four Member States. These are Austria, Finland, Latvia and Spain. The aim of 
this report is to assess compliance with the deficit criterion, underpinning a possible decision on 
whether excessive deficits exist in those Member States. For Austria, Finland, and Spain, the report 
is based on a general government deficit above the 3% of GDP deficit reference value in 2024. 
Latvia is included due to a planned deficit in 2025 exceeding the 3% of GDP reference value. On 
the basis of the analysis in the report, there is no case to open an excessive deficit procedure for 
Finland, Latvia and Spain. Concerning Austria, taking into account the Opinion of the Economic 
and  Financial  Committee  on  its  Report,  the  Commission  will  consider  proposing  to  open  an 
excessive deficit procedure by proposing to the Council to adopt a Decision under Article 126(6) 
TFEU establishing the existence of an excessive deficit.  

44 Inspite  of  this  deviation,  the  Commission  Spring  2025  Forcast  indicates  that,  the  general  government  headline 
balance remains in surplus.  

37 

 
 
Source: Commission calculations based on Commission 2025 Spring Forecast. 

38 

(A)(B)(C)(D)(E)Member States under the excessive deficit procedureBE0.70.7Yes2021-0.1FR0.1-0.3NoIT0.0-0.2NoHU0.7-0.2Yes2021-1.0MT-1.80.2NoPL-0.10.0Yes2021-1.2RO0.11.7NoSK0.0-0.3Yes2021-1.2Other Member StatesBG1.11.1Yes2024-0.2CZ-0.2-2.2Yes2021-2.5DK2.10.5Yes2021-1.0DE-0.1-0.1Yes2021-0.4EE-2.0-2.0Yes2021-3.5IE0.30.0NoEL0.2-0.9Yes2024-0.9ES0.2-0.5NoHR0.60.2Yes2021-0.3CY0.50.5NoLV-0.1-1.9Yes2021-2.7LT1.01.0Yes2021-0.3LU0.5-0.3NoNL1.41.4NoAT-0.3-0.3NoPT0.40.5Yes20210.5SI-0.4-1.1Yes2021-1.5FI-0.2-0.5Yes2021-1.4SE-1.1-1.2NoAnnual deviation 2025Cumulated deviation 2025National escape clauseReference year for national escape clauseCumulated deviation taking into account flexibiliy from national escape clause 
 
 
Notes: The table underpins the assessment of compliance of Member States discussed in this Box. In column A and 
B, a positive  deviation indicates that net expenditure  projected for 2025 in the Commission Spring 2025 Forecast 
exceeds the maximum growth rates of net expenditure as set by the Council in its Recommendation endorsing the 
medium-term  plan  (Czechia,  Denmark,  Estonia,  Ireland,  Greece,  Spain,  Croatia,  Cyprus,  Latvia,  Lithuania, 
Luxembourg, Netherlands, Portugal, Slovenia, Finland, Sweden) or in its Recommendation with a view to bringing 
an end to the situation of an excessive deficit (France, Italy, Hungary, Malta, Poland, Slovakia, and Romania). For 
Belgium, Bulgaria, Lithuania and Austria, a positive deviation indicates that projected net expenditure exceeds the 
maximum growth rates of net expenditure as included in the medium-term plan (for Belgium, Bulgaria and Lithuania, 
the plan has been positively assessed by the Commission and endorsement by the Council is pending; for Austria, the 
plan is still being assessed by the Commission). For Germany no quantitative assessment can be undertaken in the 
absence of the medium-term plan. Column C reports if Member States have so far requested the activation of the 
national escape clause. Column D reports the projected cumulative deviation after taking into account the flexibility 
provided by the national escape clause for defence spending for Member States that have requested the activation of 
the national escape clause.  

39 

 
 
Source: Commission Spring 2025 Forecast.  

40 

202420252026202420252026202420252026Member States under the excessive deficit procedureBE-4.5-5.4-5.5104.7107.1109.81.00.80.9FR-5.8-5.6-5.7113.0116.0118.41.20.61.3IT-3.4-3.3-2.9135.3136.7138.20.70.70.9HU-4.9-4.6-4.773.574.574.30.50.82.5MT-3.7-3.2-2.847.447.647.36.04.14.0PL-6.6-6.4-6.155.358.065.32.93.33.0RO-9.3-8.6-8.454.859.463.30.81.42.2SK-5.3-4.9-5.159.360.963.02.11.51.4Other Member StatesBG-3.0-2.8-2.824.125.127.12.82.02.1CZ-2.2-2.3-2.243.644.545.41.11.92.1DK4.51.50.631.129.729.43.73.62.0DE-2.8-2.7-2.962.563.864.7-0.20.01.1EE-1.5-1.4-2.423.623.825.4-0.31.12.3IE4.30.70.140.938.638.21.23.42.5EL1.30.71.4153.6146.6140.62.32.32.2ES-3.2-2.8-2.5101.8100.9100.83.22.62.0HR-2.4-2.7-2.657.656.356.43.93.22.9CY4.33.53.465.058.051.93.43.02.5LV-1.8-3.1-3.146.848.649.3-0.40.52.0LT-1.3-2.3-2.338.241.243.92.82.83.1LU1.0-0.4-0.526.325.726.21.01.72.0NL-0.9-2.1-2.743.345.047.81.01.31.2AT-4.7-4.4-4.281.884.085.8-1.2-0.31.0PT0.70.1-0.694.991.789.71.91.82.2SI-0.9-1.3-1.567.065.563.81.62.02.4FI-4.4-3.7-3.482.185.687.5-0.11.01.3SE-1.5-1.5-0.833.533.833.31.01.11.9General government balance (% GDP)General government debt (%GDP)GDP (real growth rate)