New momentum for jobs, growth and investment in 2015
EU Annual Growth Survey, AGS launches the annual cycle of economic governance for 2015 and sets out general economic priorities for the EU and the member states. The economic policy guidance for 2015 is based on three main pillars: boosting investments, activating structural reforms and deliver on fiscal responsibility. These ideas are a good hint for Latvian Council Presidency, which aimed at stimulating growth.
The AGS launches the annual cycle ofeconomic governance, sets out general economic priorities for the EU andprovides the states with policy guidance for 2015. Despite the efforts made atnational and EU level, the recovery of the European economy is still weak andfragile. This in turn is hampering progress in reducing the high level ofunemployment and poverty. Restoring confidence and getting the entire EU togrow again, argue the Commission, can only be done by working together: itrequires a determined commitment from the EU states to do things differently atnational level.
Given the important differencesbetween the economic situations in the member states, the right approach willinevitably vary from country to country. Thus, to give a common direction andsteer national approaches, the Commission recommends three main pillarsfor the EU’s economic and social policy in 2015:
1. A boost to investment. Sincethe global economic and financial crisis, the EU has been suffering from lowlevels of investment. Collective and coordinated efforts at European level areneeded to reverse this downward trend and put Europe firmly on the path ofeconomic recovery. Investments are needed to modernise welfare systems, fundeducation, research and innovation; to make energy greener and more efficient;to modernise transport infrastructure and to roll-out far-reaching and fasterbroadband.
The European Commission is ready todo its share: at the end of November 2014, the Commission launched a ˆ 315 billion investment planfor the next three years. The Union’s „investment offensive“is based on three strands, which are mutually reinforcing: (1)mobilising investment finance without creating new debt; (2) supportingprojects and investments in key areas such as infrastructure, education,research and innovation and (3) removing sector-specific and other financialand non-financial barriers to investment. The European Commission calls on theEuropean Parliament and the member states to support the investment plan andtake the necessary action swiftly so that there is a decisive effect on theEuropean economy.
2. A renewed commitment tostructural reforms. As the focus shifts from tackling emergenciesstemming from the crisis to building solid foundations for jobs and growth, arenewed commitment to structural reforms is needed. At the EU level, deepening the Single Market is a major element in structuralreforms, helping states’ economies to modernise and to make Europe morecompetitive, as well as attractive for investors. Priorities include removingremaining regulatory and non-regulatory barriers across sectors such as energy,telecoms, transport and the Single Market for goods and services.
At the member State level, the Commission recommends focusing ona number of key reforms: making labour markets more dynamic and tackling thehigh level of unemployment; ensuring the efficiency and adequacy of pension andsocial protection systems; creating more flexible product and services markets;improving business investment conditions and the quality of research andinnovation (R&I) investment; and making public administrations acrossEurope more efficient.
3. Pursuing fiscalresponsibility. Progress in achieving fiscal consolidation has beensignificant: average fiscal deficits in the EU have been cut in just threeyears from 4.5% of GDP in 2011 to around 3.0% of GDP in 2014. The decrease inthe number of countries under an excessive deficit procedure – down to 11 in2014 from 24 in 2011 – reflects these fiscal improvements, which wereinstrumental in restoring confidence in the soundness of European publicfinances and stabilising the financial situation. Securing long-term controlover deficit and reducing high debt levels remains a key building block towardssustainable growth. The EU states need responsible and growth-friendly fiscal policies, in linewith the Stability and Growth Pact, taking into account the particular nationalsituation. Countries with more fiscal space have more scope to encouragedomestic demand and investment. Tax systems need to become fairer and moreefficient and tax fraud and evasion must be tackled decisively.
The European Commission also proposes to streamline and reinforce theEuropean Semester by giving it a sharper focus and a morepolitical role based on the three pillars of the Annual Growth Survey (alertmechanism and employment report). A more focused European Semester shouldstrengthen the social market economy and increase the effectiveness of economicpolicy coordination at the EU level through an increased accountability as wellas improved and active participation of all social partners. The new economicpolicy cycle will also simplify Commission outputs and reduce member states’ reportingrequirements while making the process more open and multilateral.
The Annual Growth Survey isaccompanied by the Alert Mechanism Report (AMR), which is partof the regular surveillance under the Macroeconomic Imbalances Procedure, andaims to identify and address imbalances that may hinder the performance ofnational economies, the euro area, or the EU as a whole. Employment and socialindicators are being introduced into the macroeconomic imbalances procedure andshould be used to gain a better understanding of the labour market and socialdevelopments and risks.
This AMR shows that even though EU stateshave made progress towards correcting some of their imbalances andcompetitiveness has improved in several economies, macroeconomic imbalances and their major social consequences remain aserious concern. The slow recovery and the very low inflation have been anobstacle to a more pronounced reduction of the imbalances and relatedmacroeconomic risks.
Moreover, the rebalancing ofcurrent accounts remains asymmetric. Although deficits have been reduced in anumber of countries, the process has been largely driven by falling demand andmore particularly, falling investment. This could have negative implicationsfor medium-term growth potential if not corrected.
Meanwhile, Germany and theNetherlands have continued to record very high current account surpluses, whichreflect weak domestic demand and investment.
As regards individual countries,the Commission finds that furtheranalyses (in-depth reviews) are warranted to examine in detail theaccumulation and unwinding of imbalances and their related risks in 16Member States: Belgium, Bulgaria, Germany, Ireland, Spain, France,Croatia, Italy, Hungary, the Netherlands, Portugal, Romania Slovenia, Finland,Sweden and the United Kingdom.
The AlertMechanism Report provides a screening of all 28 EU economies for potentialeconomic risks, providing an early warning on imbalances such as housing boomsor banking crises. It indicates which countries warrant an in-depth review oftheir economies.
The Annual Growth Survey 2015 isalso accompanied by the publication of the Commission proposal for the JointEmployment Report. It analyses the employment situation in Europe andthe policy responses by the states. The report shows that substantialstructural reforms pay off. It also analyses the potential for improving theemployment and social performance of the EU as a whole
The Draft JointEmployment Report analyses employment and social trends, and challenges, aswell as the policy responses deployed by Member States. It serves as a basisfor further analysis, surveillance, and coordination throughout the EuropeanSemester. A factsheet is also available.
The Commissionalso published a review of various pieces of legislation that make up the"Six Pack" and the «Two Pack» regulations. While thelegislation has significantly strengthened the EU’s economic governanceframework, the review reveals areas for improvement on transparency andcomplexity of policy making, and their impact on growth, imbalances andconvergence.
Finally, theCommission published its opinions on euro area countries’ Draft Budgetary Plansfor 2015, which give an early signal on whether the underlying national budgetsare in line with the obligations under the Stability and Growth Pact.
In some cases, the risk ofnon-compliance has implications for possible steps under the Excessive DeficitProcedure. In the cases of France, Italy and Belgium, theCommission will examine the situationin early March 2015. This will be done in light of the finalisation ofthe budget laws and the expected specification of the structural reform programannounced by the national authorities in their letters to the Commission on 21November 2014. The three member states mentioned have committed at the highestlevel of government to adopt and implement growth-enhancing structural reformsby early 2015. These are expected to have an impact on the sustainability ofpublic finances over the medium term.
2. Key findings of theCommission’s autumn 2014 forecast
Real GDP growth is expectedto reach 1.3% in the EU and 0.8% in the euro area for 2014 as a whole.This should rise slowly in 2015, to 1.5 % and 1.1% respectively, as foreign anddomestic demand improve. For 2016, an acceleration of economic activity to 2.0%and 1.7% respectively is expected.
Unemployment reached 24.6million people in August 2014 – 5 million are aged between 15 and 24.Long-term unemployment is very high. Unemployment rates strongly vary acrossthe EU states, from 5.1% in Germany and 5.3% in Austria to 24.8% in Spain and26.8% in Greece in 2014.
The low inflation trend isexpected to continue by the end of 2014, with lower commodity prices,in particular for energy and food, and the weaker-than-expected economicoutlook. The gradual recovery of economic activity over the forecast horizon isexpected to lead to an increase in inflation in the EU, from 0.6% in 2014 to1.0% in 2015 and 1.6% in 2016.
The deficit-to-GDP ratiosare set to decrease further in 2014, albeit more slowly than in 2013,from 4.5% in 2011 to respectively 3.0% for the EU and 2.6% for the euro area.Government deficits are forecast to continue falling over the next two years,driven by strengthening economic activity. The debt-to-GDP ratios of the EU andthe euro area are expected to peak in 2015 at 88.3% (EU) and 94.8% (euro zone) andremain high in a number of countries.
3. Examples of effectivestructural reforms in the member states
= In Spain, inDecember 2013, the government approved a Law guaranteeing market unity in theinterest of the freedom of movement and establishment of persons and the freemovement of goods. The law is an ambitious rationalisation of overlappinglegislation in Spain, addressing the fragmentation of the domestic market andincreasing competition in product markets. According to the SpanishAuthorities, the reform is estimated to raise GDP by more than 1.5% over time.
= Portugal enacteda number of labour market reforms between 2011 and 2013. The protection ofworkers under permanent and fixed-term contracts was aligned. Working time legislationwas made more flexible, and measures were taken to better adapt wages toproductivity at the firm level. Unemployment benefits were reformed andeligibility was extended. The Public Employment Service was reformed, existingActive Labour Market Policies were reviewed and new programmes introduced,including targeted to the youth. The unemployment rate declined by about 2percentage points between 2013 and 2014.
= Poland initiatedan ambitious reform facilitating access to regulated professions. Access to 50professions – including lawyers, notaries, real estate agents and taxi drivers– has been liberalised in the first wave of reform in 2013. Decisions coveringa further 91 professions were adopted by the Polish Parliament in April 2014and deregulation of 101 additional professions is planned for early 2015.
= Italy implementeda set of measures in 2013 aimed at increasing competition and transparency inthe gas and electricity markets. The initiatives taken by the Italiangovernment have helped to address the long-standing issue of high energy pricesin Italy and, according to estimates from the energy regulator, have helped toreduce end-users prices.
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