On Tuesday 21 November, the European Commission kicked off the 2024 edition of the ‘European Semester’ budgetary process, which defines the broad socio-economic policy guidelines for the European Union next year, against a backdrop of a sharp slowdown in growth, before a slight rebound expected in spring 2024 and a gradual return to controlled inflation (see EUROPE 13293/2).
In its annual growth review, the EU institution stresses the importance of coordinating budgetary and socio-economic policies in order to boost competitiveness. In 2024, the ‘European Semester’ will support Member States in their reforms to increase their potential in this area, by removing obstacles to private and public investment, creating a business-friendly environment and developing the skills required to make a success of the green and digital transitions.
“This year’s cycle will focus on longstanding structural problems, including weak productivity, ageing societies, and challenges linked with adapting to the green and digital transitions”, said Commission Vice-President Valdis Dombrovskis. He described “labour and skills shortages” as a “particular area of concern”, with more than two-thirds of employers unable to recruit “in the healthcare, ICT and green sectors”.
Next year, complementarities between the post-Covid-19 national recovery plans and cohesion policy must also be strengthened, at a time when a mid-term review of this policy is underway.
To see the annual growth review, go to https://aeur.eu/f/9nb
Euro area. On Tuesday, the Commission presented a draft recommendation advocating a restrictive fiscal stance for the euro area in 2024, as called for by the Eurogroup (see EUROPE 13222/13).
Such a budgetary stance next year is “appropriate in order to address inflationary pressures and promote the sustainability of public finances”, according to one European official. He noted that this budgetary tightening was “not due to a contraction in public investment”, which remains at high levels thanks in particular to the Next Generation EU recovery plan.
The Commission is therefore advocating prudent budgetary policies. Member States, especially Germany, Malta and Portugal, are expected to abolish the emergency measures taken last winter to help households and businesses worst affected by the energy crisis caused by Russia’s military aggression against Ukraine. Removing these measures will reduce inflationary pressure, and the resulting budgetary leeway should be used to reduce the public deficit, the Commission adds. This is not the case everywhere, particularly in Italy.
According to the Commission, at national level, fiscal policy in 2024 will be restrictive in fourteen eurozone countries and will remain expansionary in five others: Portugal (1.4% of GDP), Croatia (1.2%), Lithuania (0.6%), Latvia and Finland (both 0.5%).
To see the draft recommendation for the euro area, go to https://aeur.eu/f/9nc
DBPs 2024. On Tuesday, the Commission also presented its analysis of the draft budget plans for 2024 that the eurozone countries (with the exception of Spain, Luxembourg and Slovakia) submitted to it at the beginning of October.
This analysis is now quantitative insofar as the lifting, at the end of 2023, of the general escape clause in the Stability and Growth Pact, which was activated in spring 2020 to confront the Covid-19 pandemic, heralds the return to full application of European fiscal rules in 2024, in particular the possibility of opening excessive deficit procedures on the basis of the final figures for 2023.
This full application of the fiscal rules should nevertheless take account of the legislative reform currently being negotiated by the European Parliament and the Council of the EU, provided that a political agreement is reached before the end of the legislative cycle (see EUROPE 13296/17).
“We need to adopt coordinated and prudent fiscal policies, starting with the winding down of energy support measures”, said the European Commissioner for Economy, Paolo Gentiloni, while highlighting the need to guarantee high levels of investment in the public and private sectors. On the potential opening of infringement proceedings, he indicated that the Commission would take decisions “at the end of June 2024” on the basis of the data to be published by Eurostat in “March”.
According to the Commission’s autumn economic forecasts, seven countries are expected to have a deficit in excess of 3% of GDP at the end of 2023: Italy (-5.9%), Slovakia (-5.6%), Belgium (-4.9%), France (-4.8%), Malta (-4.6%), Spain (-4.5%) and Slovenia (-4.4%). Despite continued fiscal consolidation, these seven countries are expected to be in an excessive deficit situation by 2024.
In its analysis, the Commission assesses how the 2024 draft budget plans comply with the Council’s recommendations issued last July on limiting net expenditure growth. It considers that the draft budget plans of seven countries – Cyprus, Estonia, Greece, Spain, Ireland, Slovenia and Lithuania – are in line with the recommendations issued by the EU Council in June (see EUROPE 13203/28). The draft budget plans of nine other countries – Austria, Germany, Italy, Luxembourg, Latvia, Malta, the Netherlands, Portugal and Slovakia – do not fully comply with the recommendations made to them.
Above all, the draft budget plans of four countries – Belgium, Finland, France and Croatia – run the risk of not complying with the Council’s recommendations. The Commission is therefore inviting these countries to present the necessary measures to comply with them.
In France, for example, the rise in net primary expenditure (2.8%, according to the Commission) “exceeds” the level recommended (2.3%) by the Council, noted Mr Dombrovskis, signalling a partial abolition of emergency energy measures. The level of overspending is equivalent to 0.3% of GDP, according to the EU institution. Mr Gentiloni nevertheless noted that France had complied with the recommendations in terms of structural reforms,
For all euro area countries, the EU institution identifies a two-stage budgetary process for 2024: - limit the growth of primary public expenditure below a different threshold, depending on the situation of the Member States; - use budget savings to reduce the deficit as soon as possible.
For more information on the 2024 draft budget plans of the eurozone countries, go to https://aeur.eu/f/9nd
It should be noted that the Commission has not presented its periodic reports on the macro-budgetary surveillance of the euro area countries that have been the subject of a budgetary rescue by the euro area.
Macroeconomic imbalances. On Tuesday, the European Commission took stock of the macroeconomic imbalances observed in many Member States.
Its new report on the alert mechanism confirms that in-depth reviews are warranted for eleven Member States, namely: Cyprus, Germany, Greece, France, Hungary, Italy, the Netherlands, Portugal, Romania, Spain and Sweden.
The report also takes the view that further investigations are warranted for Slovakia. Despite a significant improvement in the situation observed during the previous cycle, developments in Slovakia since then show that the risk of imbalance persists, according to the Commission. This European source pointed to a number of factors to watch out for, such as high inflation, robust wage growth and inflationary pressure on public finances.
To see the report by the alert mechanism on macroeconomic imbalances, go to https://aeur.eu/f/9ne
Employment. “Solid employment growth, on average over the last two years, has put the EU well on track towards its headline employment target by 2030”, says the Commission in its new draft Joint Employment Report, published the same day.
However, there has been a slight slowdown. “From the 2022 level of 74.6%, the employment rate needs to rise by another 3.4 pps in the EU until 2030 to reach the 78% target, although most recent quarterly data point to slower progress”, observes the EU institution. The potential for improvement lies in access to the labour market for less skilled workers, older women and young people.
In terms of vocational training, significant progress is also needed to reach the EU’s target of 60% of adults participating in training each year by 2030, compared with just 37.4% of adults in 2016. Member States should, for example, develop new intelligence tools for skills and increase the supply of individual training rights and micro-credits.
The number of people at risk of poverty or social exclusion has remained stable overall in the EU, falling by 279,000 in 2022. But while the majority of Member States have made progress in achieving their national poverty reduction targets, several countries have taken a step backwards. Major efforts are therefore still needed to achieve the EU’s objective of reducing the number of people at risk of poverty or social exclusion by at least 15 million by 2030, compared with 2019.
To see the draft joint report on employment, go to https://aeur.eu/f/9nf (Original version in French by Mathieu Bion with Solenn Paulic)