Recommendation for a COUNCIL RECOMMENDATION on the economic policy of the euro area
Date: 2025-11-25
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU banking union, EU budget, economic growth, economic policy, economic reform, euro area, fiscal policy, innovation, macroeconomics, single market

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   EUROPEAN COMMISSION  Strasbourg, 25.11.2025  COM(2025) 957 final  Recommendation for a COUNCIL RECOMMENDATION on the economic policy of the euro area {SWD(2025) 957 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic policy of the euro area 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Article 136 in conjunction with Article 121(2) thereof, 

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

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

Having regard to the recommendation of the European Commission, 

Having regard to the conclusions of the European Council, 

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

Having regard to the opinion of the Economic Policy Committee, 

Whereas:  

(1) 

(2) 

(3) 

The Council Recommendation on the Economic Policy of the euro area is an integral 
part  of  the  annual  cycle  of  macroeconomic  coordination.  It  offers  guidance  to  euro 
area  Member  States,  tailored  to  the  specific  challenges  facing  the  Economic  and 
Monetary Union. 

The Recommendation serves as a tool to help define the Eurogroup policy agenda and 
promote policy discussions on issues of common interest, helping to foster coherence 
and  convergence  of  the  Union’s  and  national  policies.  By  providing  a  shared 
understanding  on  the  main  policy  priorities,  it  contributes  to  more  effective  policy 
coordination, strengthens resilience and enhances the euro area’s capacity to respond 
to  external  shocks  while  seizing  opportunities  for  sustainable  and  inclusive  growth, 
safeguarding  stability  and  helping  the  transition  towards  a  decarbonised  and  digital 
economy. 

The  euro  area  is facing  a more uncertain  global  environment  than at  any time in  the 
past  decade.  Geopolitical  tensions,  in  particular  Russia’s  ongoing  war  of  aggression 
against Ukraine, affecting EU’s Eastern border regions, and the emergence of a more 
fragmented,  multipolar  world  order  are  reshaping  trade  and  financial  patterns. 
Unilateral approaches by major partners, particularly in trade, have unsettled markets 
and  raised  questions  about  the  reliability  of  long-standing  international  frameworks. 

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OJ L 1263, 30.4.2024, p. 1. 
OJ L 306, 23.11.2011, p. 25.  

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(4) 

(5) 

On the one hand, these developments constitute external shocks which disrupt global 
supply chains, and create volatility in trade, capital flows and energy markets. On the 
other  hand,  they  underscore  the  importance  of  economic  security  and  strategic 
autonomy as components of economic resilience and highlight the urgency to invest in 
critical  capacities  and  circularity.  Against  this  backdrop,  the  Competitiveness 
Compass3 — a strategic initiative by the European Commission —provides a valuable 
framework  to  assess  both  challenges  and  opportunities.  By  identifying  three  priority 
areas  —  closing  the  innovation  gap,  decarbonising  the  economy,  and  reducing 
strategic  dependencies  —  it  indicates  where  the  Union  and  the  euro  area  must 
concentrate efforts to secure prosperity in a rapidly changing world. To seize emerging 
opportunities, forward-looking policies, closer coordination among Member States and 
a renewed focus  on innovation  are essential.  By addressing structural  vulnerabilities, 
and  deepening  the  Single  Market,  while  simultaneously  strengthening  security  and 
autonomy, the Union and the euro area can turn external pressures into drivers of long-
term resilience and global influence. 

The  euro  area  economy  continues  to  prove  resilient.  Economic  growth  exceeded 
expectations  in  the  first  nine  months  of  the  year.  This  better-than-expected 
performance  was  initially  due  to  a  surge  in  exports  ahead  of  anticipated  tariff 
increases,  but  investment  in  equipment  and  intangible  assets  also  performed  more 
strongly  than  expected.  As  one  of  the  world’s  most  open  large  economies,  the  euro 
area is set to feel the strain of the increased global trade restrictions and tensions.  As 
result, domestic demand is,  and is  expected to  remain, the primary driver of growth, 
underpinned  by  a  robust  labour  market,  improving  real  incomes,  and  broadly 
favourable  financing  conditions.  In  2026,  economic  activity  is  likely  to  remain 
constrained  by  slower  external  demand  from  trade  restrictions  and  lingering  global 
uncertainty. Overall, real GDP in the euro area is expected to grow by 1.2% in 2025 
and  by  1.2%  in  2026.  The  growth  outlook  remains  subject  to  high  uncertainty,  with 
downside risks prevailing. 

Inflation  in  the  euro  area  continues  to  moderate.  Since  spring  2025,  inflation  has 
fluctuated  around  levels  broadly  consistent  with  price  stability.  Headline  (HICP) 
inflation  was  at  2.1%  in  October  2025,  while  core  inflation  (excl.  food  and  energy) 
remains higher at 2.4%. Underlying price pressures are expected to remain contained 
by the recent appreciation of the euro, intensifying import competition and moderating 
wage growth. While euro area inflation has recently been close to the ECB definition 
of price stability, for some Member States inflation remains high. In this context, the 
European Central Bank (ECB) halted the easing cycle it started in June 2024. Between 
June 2024 and 2025, the deposit facility rate has been lowered by a total of 200 basis 
points, bringing it down to 2%. As a result, policy rates in the euro area are currently 
close  to  most  estimates  of  the  natural  rate.  Looking  ahead,  headline  inflation  is 
projected  by  the  Commission  at  2.1%  in  2025  1.9%  in  2026.  Risks  to  the  inflation 
inflation 
outlook  are  broadly  balanced,  with  most  measures  of  longer-term 
expectations  continuing  to  stand  at  around  2%,  thus  supporting  the  stabilisation  of 
inflation  around  the  target.  This  indicates  that  the  ECB’s  policy  has  been  credible, 
anchoring expectations and guiding inflation back towards price stability. 

(6) 

In the past years, there have been relevant improvements in the fiscal position of the 
euro area as a whole: from 2020 to 2024, the average deficit fell from 7.0% of GDP to 

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3.1% of GDP, while the debt-to-GDP ratio decreased by 10.1 ppt. reaching 88.1% of 
GDP in 2024. Looking ahead, the fiscal outlook points to a modest deterioration, with 
the deficit expected to rise to 3.2% of GDP in 2025 and 3.3 % of GDP in 2026, driven 
by  rising  defence  spending  as  well  as  continued  growth  in  interest  expenditure  and 
some  revenue  shortfalls.  The  debt  ratio  is  projected  to  increase  to  88.8%  of  GDP  in 
2025  and  89.8%  of  GDP  in  2026,  reflecting  a  less  favourable  interest–growth 
differential,  and  persistent  primary  deficits.  The  fiscal  stance  is  projected  to  remain 
broadly neutral over the forecast horizon in both the EU and euro area, although with 
considerable variation among Member States. The fiscal stance is shaped by the fiscal 
paths  that  were  recommended  by  the  Council  in  line  with  the  Union’s  economic 
governance  framework,  the  flexibility  allowed  under  the  national  escape  clause  to 
facilitate the move to higher defence spending, as well as the impact of Recovery and 
Resilience Facility (RRF) and other EU Funds. 

The  reshaping  of  Europe’s  security  environment  is  prompting  a  transition  towards 
substantially  increased  defence  spending  across  the  Union.  NATO  members  have 
committed to new target of 5% of GDP for defence and security-related expenditure. 
The Council has supported this effort by activating the national escape clauses, under 
the EU  fiscal  framework, for  12-euro area Member States. The Commission  and the 
High Representative published a White Paper for European Defence Readiness 20304, 
alongside the ReArm Europe plan, which provides financial levers for Member States 
to strengthen defence capabilities and infrastructure, including the Security Action for 
Europe (SAFE) 5, through which the EU budget will provide up to EUR 150 billion in 
loans to Member States to support defence investments. This new instrument has met 
with  strong  demand  from  Member  States,  who  have  expressed  their  interest  to 
participate  and  sought  support  beyond  the  available  budget.  Defence  expenditure 
remains  uneven  across  countries  and  sometimes  heavily  concentrated  in  personnel 
costs.  On  the  demand  side,  the  dependence  on  US-supplied  systems  and  long 
development  cycles  limit  efficiency  and  the  ability  to  scale  up  production  rapidly. 
Ramping up European production, increasing cooperation among Member States and 
the share of military goods that are designed and manufactured in Europe will require 
addressing  existing  constraints  and  further  integrating  the  defence  market.  It  can 
deliver a short- to medium-term macroeconomic stimulus, provided that procurement 
leverages  European  industrial  capacities,  while  its  great  potential  for  innovation 
creates an opportunity for long-term productivity spillovers.  

The fiscal position in the euro area remains under pressure, with government deficits 
and  debt  levels  still  above  pre-pandemic  ratios  in  several  Member  States  and  not 
projected  to  decline  in  the  immediate  years  ahead.  Respecting  the  fiscal  paths 
recommended  by  the  Council  to  preserve  debt  sustainability  will  need  to  go  hand  in 
hand  with  making  room  for  spending  pressures  arising  from  the  need  to  improve 
defence  capabilities,  strengthening  competitiveness  and  enhancing  investment  on 
strategic priorities, including in critical capacities and infrastructure, as well as for the 
budgetary costs associated with increasingly frequent events related to climate change- 
and environmental degradation, losses of which are privately insured only to a limited 
extent.  These  significant  and  competing  spending  needs  will  require  a  gradual 
reprioritisation  of  public  expenditure,  taking  measures  to  contain  the  rise  in  ageing 

(7) 

(8) 

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White Paper for European Defence – Readiness 2030 
COM(2025) 122 final 

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costs,  improving  the  quality  of  spending  programmes  and  exploring  the  scope  for 
mobilising  additional  revenue.  Reducing  tax  gaps  by  improving  tax  compliance, 
including  through  digitalisation,  tackling  avoidance  and  evasion  and  combatting 
aggressive  tax  planning  remain  important  to  ensure  fair  and  efficient  tax  systems. 
Broadening the tax base and shifting towards taxes less detrimental to growth, while 
increasing incentives to  work and align tax strategies with broader policy objectives, 
would support sound public finances and sustainable growth. Spending could become 
much  more  efficient  and  targeted  at  policy  priorities  by  a  thorough  use  of  spending 
reviews, cost  benefit analysis and performance budgeting tools. In  particular, greater 
use of private insurance of climate related losses could provide additional fiscal space. 
In 2025, the rules on the mid-term review of EU Cohesion Policy also highlighted  a 
number  of  areas  (defence  and  security,  competitiveness  and  decarbonisation,  energy 
transition, affordable housing, measures related to water and challenges facing Eastern 
border  regions)  as  EU  strategic  priorities.  Reprogramming  operational  programmes 
and  mobilising  available  resources  would  allow  for  additional  investments  in  these 
areas. Finally, improving the efficiency of public investment through sound medium- 
and  long-term  planning,  effective  coordination  across  policy  areas  and  levels  of 
government,  rigorous  project  appraisal  and  synergies  with  private  financing  would 
contribute to higher productivity and fiscal sustainability.  

The euro area labour market remains robust despite labour shortages, which are easing 
but  remain sizeable. Unemployment  is  at historically low levels,  standing  at  5.9%  in 
mid-2025. Employment growth has slowed down, and it continues to be supported by 
rising labour market participation and inward migration. In several Member States, net 
migration has been the major contributor to employment growth since 2021. Managed 
legal  migration  has  helped  ease  labour  shortages  in  specific  industries  and  offset 
demographic  headwinds.  At  the  same  time  sizeable  differences  remain  among 
population  groups.  The  outlook  for  2026  points  to  continued  moderation  in 
employment growth and continued low unemployment, but with persistent disparities 
across  Member  States  and  regions.  Heightened  trade  restrictions  and  lingering 
uncertainty  could  weigh  on  growth  and,  hence,  employment  through  both  higher 
tariffs  on  exports  and  heightened  global  uncertainty.  Nominal  wage  growth  is 
moderating  after  a  period  of  rapid  growth.  Annual  growth  in  compensation  per 
employee in the euro area stood at 3.9% in the first half of 2025, down from 4.5% on 
average in 2024. Given falling inflation, real wages increased by 1.7% in the first half 
of  2025  and,  by  mid-2025,  the  purchasing  power  of  wages  had  recovered  to  2019 
levels in the euro area as a whole. Looking ahead, negotiated wage growth is expected 
to further moderate gradually.  

(9) 

(10)  Labour  and  skills  shortages  combined  with  demographic  pressures  continue  to  pose 
important challenges to many European sectors and the economy as a whole. Labour 
market  dynamics  are  also  shaped by the ongoing  transition towards a digital  (in line 
with  the  Digital  Decade  Policy  Programme6)  and  decarbonised  economy,  which  are 
creating new opportunities, while rendering some jobs and skills obsolete. Equipping 
workers for this shift requires sustained efforts in upskilling and reskilling, supported 

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The  Digital  Decade  Policy  Programme  (DDPP)  provides  a  shared,  legally  binding  governance 
framework  to  steer  the  EU’s  digital  transformation  towards  2030.  It  defines  common  EU  targets  and 
objectives  which  are  recognised  as  an  essential  enabler  of  Europe’s  competitiveness,  resilience,  and 
technological sovereignty. 

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by closer alignment between labour market policies, education and training provision, 
and the skills in demand. Also, enhancing the acquisition of basic skills from an early 
age  helps  laying  the  foundations  for  skill  development.  Addressing  large  regional 
disparities in skills and human capital endowments will benefit workers and bolster the 
single  market.  Stronger  focus  on  STEM  (science,  technology,  engineering  and 
mathematics) education and training - fields where shortages exist - is also essential to 
sustain  competitiveness,  preparedness  and  technological  leadership.  Strengthening 
incentives  to  work  by  shifting  the  tax  burden  away  from  labour,  including  through 
targeted reforms of tax and benefit systems, as well as improving working conditions 
in  certain  sectors,  would  support  participation  and  employment.  Facilitating  the 
integration of underrepresented groups (including women, younger and older workers, 
Roma  and  people  with  disabilities)  which  depend  on  the  country-specific  context, 
inclusiveness.  Young  people’s 
would  further  strengthen 
participation  and  thriving  in  the  workforce  is  instrumental  for  the  Union’s  sustained 
prosperity. At the same time, reducing poverty and supporting vulnerable households 
through  adequate  and  sustainable  social  protection  and  inclusion  systems,  including 
improving  access  to  care  services  and  improving  affordable  and  accessible  housing  
are key to social cohesion. Quality job creation and transitions, as well as ensuring the 
effective  involvement  of  social  partners  in  policy  making  and  strengthening  social 
dialogue,  remain  essential  to  sustain  euro  area  competitiveness  and  resilience  to 
structural  change.  Initiatives  under  the  Union  of  Skills7,  the  Quality  Jobs  Roadmap 
will help drive these efforts. 8 

labour  supply  and 

(11)  Addressing  structural  weaknesses  is  crucial  to  unlocking  stronger,  more  sustainable 
economic growth in the Union and the euro area. EU’s growth potential is hindered by 
productivity gains largely limited to mid-tech manufacturing and low-skilled services, 
whereas  the  US  has  seen  more  significant  development  in  high-skilled,  innovative 
sectors like IT services. Strengthening the European capacity to innovate and compete 
globally  requires  mobilising  resources  available  in  all  EU  regions  and  translating  its 
strong research base into marketable technologies and products. This calls for higher 
investment  in  Research  and  Development  (R&D)  and  knowledge,  stronger  links 
between research and industry, deeper innovation ecosystems, and ensuring the growth 
of a well-developed circular economy industry. To this end, the unitary patent system 
provides  a  key  instrument  to  strengthen  innovation.  In  parallel,  InvestEU9  mobilises 
large  volumes  of  public  and  private  investment,  including  in  the  development  and 
deployment  of  innovations,  and  the  Strategic  Technologies  for  Europe  Platform 
(STEP)10  provides  an  important  vehicle  to  channel  resources  towards  strategic 
technologies.  Despite  recent  improvements,  EU’s  venture  capital  ecosystem  also 
remains  fragmented  and  undercapitalised,  especially  as  regards  investments  in  scale-
ups.  Expanding  private  long-term  risk  capital,  including  through  progress  towards  a 
Savings and  Investment  Union and sustained support through public policies, is  also 
important  to  scale  up  innovation  and  support  R&D  at  the  European  level.  Europe’s 
growth and competitiveness is also hindered by structurally higher energy costs. The 
Action  Plan  for  Affordable  Energy  aims  to  lower  energy  prices  and  further  reduce 
dependency on fossil-fuels. For this, completion of the Energy Union, electrification, 

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OJ L 107 26.3.2021, p. 30 
OJ L, 2024/795, 29.2.2024 

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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. 

(12)  Well-functioning  goods,  labour  and  financial  markets  are  essential  for  investment, 
resilience  and  productivity.  Mobilising  resources  for  sectors  displaying  high 
productivity growth potential requires the removal of bottlenecks to capital and labour 
reallocation,  including  to  facilitate  start-ups  and  scale-ups.  Despite  its  major 
contribution  to  Europe’s  welfare  and  convergence,  the  Single  Market  remains 
incomplete —  particularly  in  services, digital  and energy  — due to  internal barriers, 
regulatory  disparities,  complex  procedures  and  transposition  gaps.  In  May  2025,  the 
Commission  launched  a  new  Single  Market  Strategy11,  to  be  reinforced  by  a 
forthcoming  Single  Market  Roadmap  to  2028,  to  reduce  barriers,  prevent  new  ones, 
and  align  the  Single  Market  with  Europe’s  strategic  objectives.  Beyond  the  Single 
Market, 
fostering  supportive  business  environments  with  an  emphasis  on 
simplification,  the  reduction  of  administrative  burdens  and  strengthening  the 
governance  of  productivity  policies  through  stronger  National  Productivity  Boards 
could  help  raise  productivity  across  Member  States.  In  addition,  in  a  context  of 
geoeconomic  fragmentation,  fostering  strong  trade  and  financial  relationships  with 
like-minded partners could also drive sustainable growth and investments.  Structural 
reforms,  including  when  supported  by  Union  funds,  such  as  the  RRF  and  other  EU 
Funds,  help  boosting  Member  States'  competitiveness  by  removing  investment 
obstacles, improving the business environment and enhancing economic stability.  

(13)  EU generates abundant savings to finance investments and its strategic priorities. The 
euro  area  is  a  net  supplier  of  capital  to  the  rest  of  the  world,  a  consequence  of  a 
persistent significant surplus in its current account, while investment needs at home—
including  R&D,  clean  energy,  climate  adaptation  and  digital  infrastructure,  defence 
and space—remain substantial. The Savings and Investment Union12 aims to improve 
the flow of domestic savings into domestic investment consistent with the objectives 
of  a  deep  and  well-functioning  Single  Market.  It  also  aims  to  give  citizens  more 
opportunities to build their wealth by  investing in capital markets thereby mobilising 
savings.  This  means  strengthening  retail  investor  participation  and  financial  literacy, 
mobilising  Europe’s  large  pool  of  institutional  investors’  assets,  and  expanding 
financing options beyond the banking sector for all firms — including to support start-
ups  and  scale-ups.  It  also  calls  for  tackling  fragmentation  in  capital  markets  and 
enabling  cross-border  economies  of  scale  through  more  efficient  and  harmonised 
supervision  within  the  Single  Market.  This  agenda  rests  on  sustained  progress  with 
respect  to  both  the  Capital  Markets  Union  and  the  Banking  Union.  By  deepening 
capital markets, retail and institutional investors, including occupational and personal 
pension schemes, could gain access to more diverse investment opportunities to build 
citizens’ wealth and channel funds into European firms and infrastructure. At the same 
time,  completing  the  Banking  Union  would  ensure  more  integrated,  stable  and 
efficient  financial  intermediation  across  Member  States,  lowering  fragmentation  and 
strengthening  the  resilience  of  the  financial  system.  Together,  these  reforms  would 
allow  the  euro  area  and  the  Union  as  a  whole  to  put  its  abundant  savings  to  work 

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domestically, transforming these savings into a driver of competitiveness, innovation, 
and security. 

(14)  The  euro  plays  a  strong  role  as  a  regional  currency,  widely  used  for  invoicing  by 
neighbouring  economies  and  as  a  reserve  currency, 
thereby  serving  as  a 
macroeconomic anchor for the stability of the wider European region. It is also widely 
used  by  European  exporters  and  importers  in  their  transactions  with  the  rest  of  the 
world.  At  the  same  time,  the  international  monetary  and  financial  system  is 
undergoing a profound change, marked by geopolitical shocks, growing multipolarity, 
and rapid technological innovation. The weaponisation, and threats of weaponisation, 
of  economic  and  financial  interdependencies  have  highlighted  vulnerabilities  in  the 
financial strategic autonomy of the Union and of the euro area. A wider international 
use of the euro would support the EU’s strategic autonomy, lower financing costs, and 
reduce firms’ exchange rate exposures, albeit with new responsibilities for maintaining 
macro-financial stability. In this context, the development of a digital euro, alongside 
efforts  to  enhance  the  interoperability  of  domestic  and  regional  private  payment 
solutions,  would  contribute  to  strengthening  Europe’s  monetary  sovereignty  thereby 
reducing  dependence  on  non-European  financial  infrastructures  and  enhancing  the 
resilience of Europe’s financial and payment system. 

(15)  The  financial  sector  has  remained  resilient.  The  results  of  the  European  Banking 
Authority’s 2025 EU-wide stress test exercise confirmed that European banks remain 
robust  even  under  a  severe  hypothetical  economic  downturn.  Yet  risks  to  financial 
stability are elevated and vulnerabilities remain. In the first half of 2025, the banking 
sector in the euro area continued to perform strongly, supported by robust capital and 
liquidity  positions,  as  well  as  sustained  profitability,  despite  weakening  global  and 
domestic conditions and falling interest rates. Bank valuations have risen significantly 
since mid-2024, while asset quality has held up so far, with non-performing loan ratios 
stable  overall.  At  the  same  time,  the  international  environment  has  become  more 
volatile.  Global  policy  uncertainty  and  volatile  global  financial  conditions  raise  the 
risk of asset price corrections, and renewed pressures on liquidity and sovereign debt 
markets.  Both  banks  and  non-bank  financial  intermediaries  (NBFIs)  have  significant 
exposures  to  trade-sensitive  sectors  such  as  steel  and  car  making.  Liquidity 
mismatches  and  high  leverage  in  key  NBFI  sectors  are  important  sources  of 
vulnerabilities. Growing interconnectedness between banks and NBFIs, together with 
significant  links  with  other  non-EU  NBFIs  and  markets,  add  more  complexity  and 
exposures  that  are  currently  not  sufficiently  visible  and  monitored.  Risks  in  the 
commercial real estate sector persist, requiring close monitoring. Developments in the 
housing  market  also  merit  attention,  given  their  links  to  bank  lending  and  private 
indebtedness, as well as with investment and economic activity more in general. Amid 
elevated  geopolitical  tensions,  cyber  risks  continue  to  grow  in  importance  as  key 
operational  vulnerabilities,  including  for  banks.  There  are  also  risks  to  the  financial 
sector  stemming  from  climate-  and  environment-related  exposures.  Against  this 
backdrop,  safeguarding  financial  stability  will  demand  continued  vigilance,  forward-
looking  supervision  and  strengthened  resilience  across  all  segments  of  the  financial 
system including through appropriate safety nets. 

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HEREBY  RECOMMENDS  that  euro  area  Member  States  take  action,  individually,  and 
collectively within the Eurogroup, in the period 2026 –2027 to: 

(1) 

(2) 

(3) 

(4) 

(5) 

(6) 

13 

To  safeguard  fiscal  sustainability,  respect  the  recommended  net  expenditure  paths, 
including, where applicable, the temporary flexibility granted via the national escape 
clause for defence spending. That should deliver an appropriately differentiated fiscal 
policy and result in an overall neutral fiscal stance in 2026.  

While respecting the recommended net  expenditure paths,  implement  medium-term 
fiscal  strategies  that  make  room  for  the  necessary  spending  linked  to  defence 
capabilities,  strengthening  competitiveness  and  enhancing  investment  in  strategic 
priorities.  Reprioritise  national  budgets  and 
take  measures  to  enhance  the 
effectiveness, efficiency, quality and composition of public revenue and expenditure 
including by promoting greater private insurance of losses related to climate-related 
events. 

Address  bottlenecks  in  defence  industries  to  ensure  that,  in  line  with  the  Defence 
Readiness  Roadmap  2030,  additional  public  spending  translates  into  timely  and 
effective  defence  capabilities.  Promote  an  EU-wide  market  for  defence  equipment; 
encourage  joint  procurement  that  helps  improving  efficiency,  interoperability  and 
reduces fragmentation.  

Complete the implementation of Recovery and Resilience Plans by 31 August 2026 
and  support  investment  financing  in  subsequent  years  by coordinating  national  and 
EU  funding.  Ensure  absorption  of  available  EU  funds,  taking  advantage  of  the 
opportunities introduced with the mid-term review of cohesion policy . 

Promote  upskilling  and  reskilling  of  the  workforce  with  a  view  to  increasing 
productivity  and  innovation  capacity  and  support  strategic  sectors.  Strengthen 
education and training policies to improve educational outcomes with a special focus 
on basic and digital skills and ensure a better match between demand and supply of 
skills profiles. Address skills mismatches and large regional disparities in skills and 
human capital endowments. Promote job quality and further increase labour market 
participation,  including  for  under-represented  groups  in  the  labour  market.  Take 
measures to facilitate cross-border mobility in the Single Market and managed legal 
migration of third-country nationals in shortage occupations. Strengthen incentives to 
work  by  shifting  the  tax  burden  away  from  labour,  including  through  targeted 
reforms of tax and benefit systems. Take action in fighting and reducing poverty by 
safeguarding  and  strengthening  adequate  and  sustainable  social  protection  and 
inclusion  systems,  as  well  as  access  to  affordable,  sustainable  and  quality  housing. 
Ensure the effective involvement of social partners in  policymaking and strengthen 
social dialogue. Ensure the effective involvement of social partners in policymaking 
and strengthen social dialogue. 

In accordance with national practices and respecting the role of social partners and of 
social  dialogue13,  strengthen  the  conditions  that  support  sustainable  wage  growth, 
especially  for 
line  with  productivity 
developments,  taking  due  account  of  risks  of  inflation  and  competitiveness 
divergences within the euro area. 

low-  and  middle-income  earners, 

in 

When  preparing  the  2026  Autumn  Package,  the  Commission  and  the  Council  have  received 
contributions 
See 
ETUC 
https://commission.europa.eu/publications/2026-european-semester-autumn-package_en  

associations. 

employers’ 

from 

and 

the 

EN 

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(7) 

(8) 

(9) 

(10) 

(11) 

(12) 

(13) 

Prioritise public investment and incentivise private investment in support of research 
and  innovation,  industrial  decarbonisation,  clean  energy  and  digital  transition, 
economic  security  and  the  reduction  of  strategic  dependencies  across  value  chains. 
Promote  the  allocation  of  resources  towards  sectors  and  technologies  with  high-
growth  potential,  and  strengthen  innovation  ecosystems,  including  by  reinforcing 
links  between  different  players  such  as  businesses,  universities  or  research 
institutions  and  developing  the  role  of  venture  capital  in  financing  start-ups  and 
scale-ups and the acceleration of the adoption of digital and clean technologies.   

Eliminate internal barriers and regulatory disparities at the national level, as well as 
remaining  transposition  and  conformity  deficits,  to  deepen  the  Single  Market  and 
enhance firms’ efficiency and ability to scale up.  

Foster regulatory simplification by identifying and reducing unnecessary burdens and 
ensuring  the  adoption  of  transparent  and  targeted  regulation,  including  by  making 
effective  use  of  public  and  stakeholder  consultations  in  the law-making  process,  as 
well as ex post evaluations of legislation.  

Develop  a  European  Savings  and  Investment  Union,  in  line  with  the  Commission 
Communication  of  March  202514,  promoting  competitive  and  well-functioning 
capital market and banking sectors to mobilise European savings towards long-term 
investments  in  particular  in  sectors  of  the  European  economy  with  high-growth 
potential or of strategic importance. Tackle capital market fragmentation and barriers 
to  cross-border  provision  and  consumption  of  financial  services,  and  divergence  in 
national supervisory practices, by making swift progress on the upcoming legislative 
package on capital market integration and supervision.   

Take steps to implement the 2025 Commission Recommendations on increasing the 
availability of savings and investment accounts with simplified and advantageous tax 
treatment15 (September 2025) and on pension dashboards, pension tracking systems 
and  auto-enrolment16  (November  2025),  as  well  as  those  contained  in  the  2025 
Communication on a Financial Literacy Strategy for the EU17 (September 2025).  

Take  all  steps  necessary  for  the  creation  of  a  digital  euro,  foster  innovation  and 
competition  in  the  payments  market  and  ensure  the  continued  wide  access  and 
usability of central bank money in a digitalising economy. 

Promote the international role of the euro and engage to further strengthen its global 
standing, 
the  European  financial 
infrastructures. 

including  by  addressing  vulnerabilities 

in 

(14)  Monitor  risks  to  macro-financial  stability,  including  those  stemming  from  asset 
quality,  repricing  dynamics,  and  climate-  and  environment-related  exposures  and 
interlinkages  between  banks  and  non-banks  in  core  financial  markets  and  through 
private finance. Where necessary enhance the regulatory and supervisory framework 
that  emerging 
intermediation  sector 
for 
vulnerabilities are effectively identified and managed. 

the  non-bank  financial 

to  ensure 

14 
15 
16 
17 

COM(2025) 124 final 
C(2025) 6800 final 
C(2025) 9300 final 
COM(2025) 681 final 

EN 

9 

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Done at Strasbourg, 

For the Council 
The President 

EN 

10 

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