Recovery is around the corner, but the road ahead still paved with unknowns

The Commission presented the European Semester package focused on setting out fiscal guidance

Photo: EU From the left to the right, Valdis Dombrovskis, Paolo Gentiloni, Nicolas Schmit.

Looking for a rebound and return to normal for EU economies for gaining sustainable growth, the Commission tabled on Wednesday the European Semester Spring Package. It is providing fiscal guidance to EU countries as they continue the process of gradually reopening their economies.

The objective is to prop up Member States for strengthen their economic recoveries, making the best possible use of the Recovery and Resilience Facility (RRF) of €672.5bn in grants and loans, which is the key tool of NextGenerationEU package.

This year’s EU Semester has been adapted given the links to Member States' recovery and resilience plans, laying out what projects and reforms the facility will finance.

We are presenting this ‘Special Edition' of the Spring Package at a pivotal moment, with our recovery around the corner but with the road ahead still paved with unknowns, commented at a news conference Valdis Dombrovskis, EC Executive Vice-President for an Economy that Works for People. He said the Commission will continue to use all tools to get the economies back on track.

“We are encouraging Member States to maintain supportive fiscal policies this year and next, preserving public investment and making the most of the funding from the Recovery and Resilience Facility to boost growth. A sound mix of expenditure - focused on investments while keeping other expenses under control - will facilitate the return to more prudent positions in the medium-term, which will be especially important for high-debt countries,” EVP Dombrovskis underscored.

The Employment Guidelines proposed today set common priorities for Member States, focusing on quality job creation, modernisation and inclusiveness of labour markets, education and training, as well as adequate social protection and health systems, Nicolas Schmit, EU Commissioner for Jobs and Social Rights stated. Turning the Pillar's principles into action through the European Semester will contribute to Europe's resilient, inclusive and sustainable recovery, he added.

According to Paolo Gentiloni, EU Commissioner for Economy, “a bleak winter is giving way to a bright spring for the European economy”. Millions of Europeans are being vaccinated every day and as case numbers decline, restrictions are being eased and confidence is rising, he sad noting that “NextGenerationEU is a reality at last”.

He also pointed out that the recovery remains uneven and uncertainty is still high, so economic policy must remain supportive in both 2021 and 2022.

Thanks also to the Recovery and Resilience Facility, public investment is set to reach its highest level in more than a decade, Commissioner Gentiloni made it clear.

He also accented that once health risks diminish, EU countries should transition carefully to more targeted measures to help firms and workers navigate the post-COVID world.

On the basis of the Commission's Spring 2021 Economic Forecast, the general escape clause of 2020 that allowed Member States to react swiftly and adopt emergency measures to mitigate the economic and social impact of the pandemic, continue to be applied in 2022 and is expected to be deactivated as of 2023.

According to the Commission, fiscal policy needs to remain supportive in 2021 and 2022 and EU27 should avoid a premature withdrawal of support and make full use of the RRF funding.

Carrying out the reforms and investments within the RRF will help to support the economic recovery, foster higher potential growth and employment, reduce imbalances and improve public finances.

The EU executive stipulated that in 2022, “national fiscal policies should become increasingly differentiated”, while all Member States should preserve investments to support the recovery.

Once conditions allow, Member States should pursue policies to ensure fiscal sustainability in the medium term.

In this line, the Commission has adopted a report under Article 126(3) of the Treaty on the Functioning of the EU for all EU Member States except Romania, which is already in the corrective arm of the pact.

Its goal is to assess Member States' compliance with the deficit and debt criteria of the Treaty. The analysis suggests that the deficit criterion is fulfilled by Bulgaria, Denmark, and Sweden and not fulfilled by all other Member States.

The debt criterion is not fulfilled by Belgium, Germany, Greece, Spain, France, Croatia, Italy, Cyprus, Hungary, Austria, Portugal, Slovenia and Finland.

At this stage, the Commission considers not to take a decision on whether to place Member States under the Excessive Deficit Procedure. It recommends for Romania to update its fiscal adjustment path, targeting a correction of its excessive deficit in 2024.

Macroeconomic vulnerabilities related to imbalances and excessive imbalances were identified for the 12 Member States selected for in-depth reviews in the 2021 Alert Mechanism Report. Cyprus, Greece, and Italy continue to experience excessive imbalances and Croatia, France, Germany, Ireland, the Netherlands, Portugal, Romania, Spain, and Sweden are experiencing imbalances.

The drive of the reforms and investments under the RRF is expected to help tackling the challenges identified over previous Semester cycles and play an important role in addressing existing macroeconomic imbalances.

The EU executive has adopted the tenth enhanced surveillance report for Greece. It concludes that, despite the challenging circumstances caused by the COVID-19 pandemic, Greece has taken the necessary actions to achieve its specific commitments.

The adopted on the same day post-programme surveillance reports for Ireland, Spain, Cyprus, and Portugal indicate that the repayment capacities of each of the Member States concerned remain sound.

On the employment front, guidelines set common priorities for national employment policies with a view to making them “more inclusive and fair”.

Updated guidelines of last October integrate the environmental sustainability and digital dimensions, reflecting the Strong Social Europe for Just Transitions Communication and integrating the UN Sustainable Development Goals. They are providing specific guidance aimed at mitigating the employment and social impact of the COVID-19 crisis.

The Commission proposes to carry over the current Employment Guidelines to 2021, underlining the role of the new EU headline targets set with the European Pillar of Social Rights Action Plan and the policy guidance emerging from the Porto Social Summit.

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