2021 European semester: country-specific recommendations

SUMMARY OF:

Commission communication – Economic policy coordination in 2021: supporting the recovery and modernising our economy

WHAT IS THE AIM OF THE COMMUNICATION?

The communication contributes to the coordination of economic policies across the European Union (EU) as the EU economy begins to recover from the restrictions imposed by the COVID-19 pandemic, supporting the recovery and modernisation of the EU’s economy.

KEY POINTS

The European semester is an annual cycle of economic and employment policy coordination, including surveillance and coordination in the context of the stability and growth pact and the macroeconomic imbalances procedure.
The 2021 edition has been adapted to help EU Member States strengthen their recovery as they reopen their economies after COVID-19 restrictions, making the best possible use of the Recovery and Resilience Facility (RRF), the key instrument at the heart of NextGenerationEU. It outlines the investments and reforms the RRF will finance.
The 2021 Annual Sustainable Growth Strategy launched the cycle designed to continue the 2020 strategy based on the European Green Deal and the concept of competitive sustainability.

Economy and employment

Measures taken at the EU and national level helped contain the impact of the pandemic on the economy and labour markets. Economic policy should remain supportive throughout 2021 and 2022. When economic conditions allow, policies should be refocused towards minimising the medium-term consequences of the current crisis. The RRF is designed to contribute to increasing growth and employment and to reduce imbalances between Member States.

Member States’ continued reforms and investments are crucial for recovery, supporting quality job creation and smooth labour market transitions, with the active involvement of social partners.

RRF roll-out

The NextGenerationEU recovery instrument and the new multiannual financial framework will provide a total of €1.8 trillion in EU financing in the period 2021–2027.

NextGenerationEU will provide €750 billion to kick-start the recovery through specific programmes:

the RRF;
REACT-EU;
the Just Transition Fund;
the European agricultural fund for rural development (EAFRD);
the InvestEU Fund;
rescEU; and
Horizon Europe.

The RRF is a temporary recovery instrument allowing the European Commission to raise funds to help Member States make reforms and investments that are in line with the EU’s priorities and that address the challenges outlined in country-specific recommendations.

€312.5 billion in grants and up to €360 billion in loans are available over 6 years to support reforms.
InvestEU is expected to mobilise more than €370 billion of additional investment over the next 7 years.
The NextGenerationEU funds are in addition to the €1.074 trillion provided from the EU’s budget for 2021–2027, which includes €338.6 billion funding from the EU cohesion policy.

Fiscal policy recommendations

The following are recommendations for 2022.

The fiscal stance stemming from national budgets and the RRF needs to remain supportive.
Member States should use RRF financing to contribute to economic recovery, fostering higher potential growth and gradually improving their underlying fiscal positions.
Member States with low debt should pursue a supportive fiscal stance, including the impulse provided by the RRF.
Member States with high debt should use the RRF to finance additional investment in support of their recovery while pursuing a prudent fiscal policy.
Member States should preserve nationally financed investment while keeping the growth of nationally financed current expenditure under control (and limited for those with high debt), to maximise support for the recovery and avoid creating a permanent burden on public finances.

Beyond 2022:

fiscal policies should continue to take into account the strength of the recovery, the level of economic uncertainty and fiscal sustainability;
when economic conditions allow, Member States should aim for prudent medium-term fiscal positions and for fiscal sustainability in the medium term;
Member States should enhance investment to boost growth potential.

In 2022, more precise guidance for subsequent years should be provided once the level of uncertainty has declined.

Member State macroeconomic imbalances

The Commission undertook an in-depth review of the 12 Member States with macroeconomic vulnerabilities because of imbalances or excessive imbalances, made a series of detailed recommendations (listed in an Appendix) and reported on their progress:

Greece, Italy and Cyprus continue to experience excessive imbalances;
Germany, Ireland, Spain, France, Croatia, Netherlands, Portugal, Romania, and Sweden are experiencing imbalances.

The COVID-19 pandemic has led to a setback in the reduction of macroeconomic imbalances observed over the past decade.

The level of implementation of the country-specific recommendations has remained broadly stable over the past few years but slightly decreased in the previous 12 months, reflecting the fact that Member States have focused their policy action on immediate crisis mitigation.

Overall, since 2011, Member States have made the most progress on country-specific recommendations on access to finance and financial services, followed by progress with legislation governing labour relations and employment protection. At the same time, progress has been particularly slow in reforming health and long-term care and broadening tax bases.

BACKGROUND

For further information, see:

European Semester 2021 – an exceptional cycle (European Commission)
European semester spring package: Questions and answers (European Commission)
The European Semester in your country (European Commission)
European semester (European Council – Council of the European Union).

MAIN DOCUMENT

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 – Economic policy coordination in 2021: overcoming COVID-19, supporting the recovery and modernising our economy (COM(2021) 500 final, 2.6.2021).