The European Commission, in presenting its country reports on Wednesday 27 February as part of the 'European Semester' budget process, has once again pointed to the need for Member States to promote investment while implementing structural reforms and responsible fiscal policies.
"Our economy is generally in good shape and its imbalances are correcting. [...] We are in a phase of slowdown, but, despite everything, we must stay the course", said Pierre Moscovici, Commissioner for Economic and Financial Affairs, at a press conference.
In the package of documents in its winter package, the Commission notes that the EU economy continues to grow, with employment levels at their highest level and public finances having improved across the EU, although Member States' situations are heterogeneous.
The country reports assess the implementation of the country recommendations of last July (see EUROPE 12045). They follow the Commission's recent economic forecasts (see EUROPE 12189) and are in line with the 2019 Annual Growth Survey and the Recommendation for the Economic Policy of the Euro Area, two documents suggested in November 2018 (see EUROPE 12142) and endorsed by the Ecofin Council in January (see EUROPE 12175). At this stage, it is not a question of taking budgetary decisions.
With regard to the challenges facing Member States, the Commission notes a low level of productivity or a worrying level of youth unemployment, although it has been reduced since the 2008 financial crisis.
It should be noted that GDP growth in the EU is expected to decline by 0.4 percentage points to 1.5% this year. Geopolitical tensions and uncertainty surrounding Brexit can have an impact on the European economy.
Consequently, the institution expects States to strengthen investment, pursue structural reforms and consolidate their public finances.
"We need effective reforms, well-targeted investment and responsible fiscal policies to ensure the resilience of our economies and the prosperity of our people", said Valdis Dombrovskis, Euro Commissioner.
"As regards public finances, governments should continue to improve their sustainability, in particular where debt ratios are high and Member States have not taken advantage of the favourable cyclical conditions and low interest rates to rebuild fiscal buffers", the communication says.
Country reports. Since the creation of the 'European Semester' budget process, the Commission notes that more than two thirds of the specific recommendations have been implemented by the Member States, a rate similar to that observed last spring (see EUROPE 12025). The financial sector and the labour market are the two areas where progress has been most significant.
Nevertheless, in the light of the recommendations approved by the Council last summer, the Commission considers that reforms must be accelerated, particularly with regard to competition or pensions.
Individually, it is recommended that Italy give a new impetus to the reforms. These include sound public finances, an efficient public administration and a more resilient banking sector that is reducing its stock of bad debts.
The recommendations with regard to Italy have a particular resonance, since the Italian government and the Commission reached an agreement in December in order to avoid, at this stage, the opening of an excessive deficit procedure on the Italian public debt criterion (see EUROPE 12163).
However, growth forecasts for Italy have been revised downwards and there is uncertainty about the Conte government's fiscal and economic policy. "The Commission remains vigilant and closely monitors developments in Italy", said Mr Dombrovskis.
His counterpart in Employment and Social Affairs, Marianne Thyssen, did not express the Commission's opposition in principle to the introduction of a citizen's income starting in April. However, it noted that the high cost of this measure was estimated at 0.45% of Italian GDP. And it should be noted that this measure would require Rome to amend its operational programme for the European Social Fund.
The Commission recommends that France persevere in consolidating public finances, simplifying taxation or stimulating public investment in research. The French budgetary trajectory for this year will also be carefully examined by the Commission, with Paris expecting no structural budgetary adjustment (excluding the effect of the economic situation).
In connection with these country reports, the work programme of the Structural Reform Support Programme for 2019 was adopted. This year, 26 Member States will receive technical support to implement 260 projects.
Macroeconomic imbalances. The Commission has also updated its analysis of the states observed under macroeconomic imbalances.
Last year, the 2019 Alert Mechanism identified 13 countries with macroeconomic imbalances or with such risks. It notes here that the correction of these imbalances is continuing, but that a certain vulnerability persists.
High public or private debt ratios are therefore still relevant in some Member States. On the other hand, like Germany or the Netherlands, other countries are in situations of excessive current account surpluses.
In the good news register, the Commission notes that non-performing loan rates in European banks are falling (see EUROPE 12148), reaching an average of 3.3% in the third quarter of 2018 compared with 4.4% a year earlier.
On Wednesday, the Commission considered that Bulgaria, France, Germany, Ireland, the Netherlands, Portugal, Romania, Spain and Sweden are subject to macroeconomic imbalances. And these are excessive for Cyprus, Italy and Greece.
Greece. The Commission has also published a second report under the enhanced supervisory framework, which has been in place in Athens since the end of its financial supervision in August 2018 (see EUROPE 12077). A first report, which showed satisfactory progress on the budgetary front, had already been suggested in November (see EUROPE 12142).
In this second report, the Commission considers that "considerable progress" has been made in some areas. Nevertheless, the institution refers to the need to continue reforms in the areas of financial services, the labour market and public administration.
Mr Moscovici will raise these issues with the Greek authorities during his visit to Athens on Thursday 28 February.
Productivity, employment, training and retraining. The Commission has also published a progress report on the implementation of the EU Council Recommendation of September 2016 on the establishment of National Productivity Boards (see EUROPE 11627).
Today, ten Member States have set up such structures and the other Member States have shown their willingness to do so.
The institution has also made a proposal to maintain last year's Council decision on guidelines for the employment policies of the Member States. This proposal is in line with the principles set out in the European Pillar of Social Rights (see EUROPE 11906).
Finally, a latest report has been published on the implementation of the Council recommendation on upskilling pathways in the EU. This aims to promote action by Member States in terms of vocational training and retraining. The Commission's report thus provides an overview of the measures implemented to date. (Original version in French by Lucas Tripoteau)