On Wednesday 4 June, the European Commission unveiled its package of budgetary, economic and social policy recommendations to the Member States of the European Union as part of the ‘European Semester’ process. In particular, it suggests opening an excessive deficit procedure (EDP) against Austria.
The country-specific recommendations reflect the political priorities - competitiveness and security - of the ‘von der Leyen II’ Commission’s mandate.
In order for EU countries to boost their competitiveness and increase productivity, the Commission recommends the following measures: “simplifying administrative and regulatory procedures, increasing public and private R&D investment, addressing labour and skills shortages (...), phasing out fossil fuel subsidies”, said European Commissioner for the Economy Valdis Dombrovskis.
Fiscal policy. On Wednesday, the EU institution unveiled its analysis of the first year of application of the revised Stability Pact in spring 2024.
“For the first time, the Commission is assessing the implementation of [Member States’] medium-term budgetary plans and compliance with the recommendations under the excessive deficit procedure. Our overall assessment is positive”, said Mr Dombrovskis.
In concrete terms, the Commission assesses the level of growth in Member States’ net public expenditure in relation to the medium-term path to which they have committed themselves, while taking account of the flexibility allowed by the general escape clause in the Pact that 16 countries have activated to increase their military spending (see other news).
According to the Commission, twelve Member States (Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, Greece, Latvia, Lithuania, the Czech Republic, Slovenia, and Sweden) are complying with the recommended maximum growth in net expenditure. Two others (Spain and Portugal) are broadly in compliance. On the other hand, four countries (Ireland, Cyprus, Luxembourg and the Netherlands) are at risk of deviating from the path recommended for 2025 and are therefore being asked to ensure that they meet their commitments.
It should be noted that Germany will present its multiannual budget programme before the end of July. The Commission would welcome it if the Merz government were to present a seven-year path, commented a European source.
EDP. The EU institution also analysed the specific budgetary situation of four countries (Austria, Spain, Finland and Latvia) in the light of the public deficit criterion (so-called Article 126(3) TFEU reports).
With 4.7% of national GDP in 2024 and forecasts of 4.4% in 2025 and 4.2% in 2026, Austria is the only country to have “a public deficit substantially in excess of 3% of national GDP”, noted Mr Dombrovskis. In his view, this situation calls for “the opening of an excessive deficit procedure”. Discussions on the medium-term budget plan, currently underway with the Austrian authorities, aim to incorporate the prospect of the opening of an EDP procedure by setting a new path for the correction of the excessive deficit. The Ecofin Council could approve this path at the beginning of July.
Of the eight countries subject to the excessive deficit procedure (see EUROPE 13462/1), France, Italy, Malta, Poland and Slovakia are on track to correct their public deficits, although France and Malta are slightly off track. The Commission is calling on these two countries to be ready to adopt additional budgetary consolidation measures.
In Belgium’s case, the EU institution has recommended a new correction path aimed at reducing the excessive government deficit by 2029 (previously 2027), following the presentation of a new medium-term budget plan by the Belgian authorities. It validates the 5% growth in net public spending in 2025, taking into account the activation by Brussels of the national derogation clause in the Pact.
Romania has been the subject of an excessive deficit procedure since 2019, and is the only country to receive a serious warning. After 9.3% of national GDP in 2024, Romania’s public deficit should reach 8.6% in 2025 and 8.4% in 2026 on an unchanged policy basis. The Commission is of the opinion that the Romanian authorities have failed to take the necessary corrective measures despite having committed themselves to reducing the deficit to 6.4% of GDP this year in the multi-annual budget programme.
If the Council validates this analysis, the Commission will propose a new path for deficit reduction. As a country outside the euro area, Romania will be exposed to a procedure known as ‘macroeconomic conditionality’, which could lead to the suspension of certain European funds by 2026.
This is a “very serious” situation that needs to be taken seriously, but “Romania can still take corrective measures”, commented the European Commissioner for Social Rights and Skills, Roxana Mînzatu.
Macroeconomic imbalances. On Wednesday, the Commission also published its analysis of macroeconomic imbalances in 10 Member States (see EUROPE 13548/18). It notes that the biggest improvements have taken place in Germany and Cyprus, which will no longer be subject to surveillance.
Mr Dombrovskis praised the progress made by the German authorities in tackling “large current account surpluses”, notably with the announcement of plans for public investment in infrastructure and defence.
Employment. The Commission also unveiled its updated guidelines for Member States’ employment policies, with a view to promoting fairer and more inclusive labour markets.
This update maintains the fundamental priorities, while adapting to new geopolitical realities, including international trade tensions and the need to increase defence spending. It builds on the guidelines adopted at the end of 2024 (see EUROPE 13548/18), which address challenges such as skills and labour shortages and the need for basic and digital skills in the age of artificial intelligence.
The Commission also welcomed the good employment performance in the Member States, with an average rate of 75.9% by the end of 2024 and a record low unemployment rate of 5.8% of the working population.
Other good news for 2024: - The employment rate gap between men and women was also at its lowest level (10%); - Youth unemployment, although still high, fell to 14.7%, while the rate of young people not in education, employment or training (NEET) fell to 11.1%.
A further two million jobs are expected to be created between now and 2026.
However, qualifications remain the EU’s weak point. Four out of five SMEs in the EU find it difficult to recruit the right talent. The main reason for this is the low participation of adults in continuing education and training (39.5% of the working adult population in 2022). Furthermore, at the age of 15, one in three teenagers in the EU does not have basic mathematical skills, said Roxana Mînzatu.
While the employment rate targets set for 2030 remain within reach, this is not yet the case for adult education. Poverty reduction targets could also be missed by 2030.
On Wednesday, the Commission published its social convergence reports for 10 countries (Bulgaria, Croatia, Estonia, Greece, Hungary, Italy, Lithuania, Luxembourg, Romania, and Spain). The greatest challenges have been identified in Greece, Italy and Romania.
See the package of country-specific recommendation: https://aeur.eu/f/h64 (Original version in French by Mathieu Bion and Solenn Paulic)