On Tuesday 25 November, the European Commission kicked off the 2026 exercise in the ‘European Semester’ budgetary process, which sets the priorities for reform and investment at European level and takes the pulse of the budgetary situation in the Member States. For the first time, it is presenting a recommendation on ‘human capital’.
Following on from the 2025 exercise (see EUROPE 13548/18), the EU institution is focusing on economic competitiveness and reaffirming the priority areas for action identified at the beginning of 2025 in the ‘Competitiveness Compass’ (see EUROPE 13568/1), including regulatory simplification and innovation. The Clean Industrial Deal must also be implemented to speed up the decarbonisation of the economy, control energy prices and reduce dependence on external sources (see EUROPE 13588/1).
“Given the challenging external environment, the growth impetus must come from within Europe. This is why enhancing Europe’s competitiveness, productivity and innovation remains our highest priority”, said Valdis Dombrovskis, European Commissioner for Economy.
In its autumn economic forecasts, the Commission predicts moderate growth in 2026 (1.3% of GDP in the euro area and 1.4% in the EU), after holding up well in 2025 (see EUROPE 13753/12).
Euro area. The Commission has presented a draft recommendation on socio-economic policies in the euro area. It considers that a “broadly neutral” budget for 2026, in line with 2025, is appropriate.
Euro area countries are invited to pursue prudent budgetary policies while stimulating innovation, education and skills, as well as investment, particularly in defence. The integration of national capital markets, with progress on the creation of the digital euro, is also highlighted.
To see the draft recommendation for the euro area: https://aeur.eu/f/jnb
Fiscal policy. On Tuesday, the Commission presented its assessment of the Member States’ compliance with the EU Council’s recommendations in implementing their multiannual budget programmes, on the basis of their draft budgetary plans for 2026 (except for Belgium and Spain).
Twelve countries in the euro area - Luxembourg, Finland, Germany, Estonia, Greece, Latvia, Italy, Slovakia, France, Cyprus, Ireland and Portugal - are respecting the trajectory set in terms of net public spending, now a key element of the revised Stability and Growth Pact.
This is also the case for Austria, which was assessed in June (see EUROPE 13670/8), and Belgium, on the basis of the autumn economic forecasts. The recent agreement on the Belgian draft budgetary plan for 2026 has not been included in the Commission’s analysis.
On the other hand, in Croatia, Lithuania and Slovenia, growth in public spending is higher than the trajectory agreed at European level. The same applies to Spain, based on the autumn economic forecasts.
As for the Netherlands, although it has “an overall solid fiscal position”, it is “at risk of material non-compliance”, noted Mr Dombrovskis. This is also the case for Malta.
To see the communication on fiscal developments in the EU: https://aeur.eu/f/jni
To see the assessments of the 2026 draft budgetary plans: https://aeur.eu/f/jnh
EDP. The Commission has also analysed in detail the debt trajectory of Germany and Finland, whose public deficits will exceed 3% of GDP in 2025.
In Germany’s view, this overrun is entirely due to the increase in military spending and does not justify the opening of an excessive deficit procedure (EDP).
In Finland, on the other hand, an excessive deficit emerged in 2024 and will continue into 2025, amounting to 4.5% of GDP. The Commission recommends initiating the EDP procedure against this Member State, taking the view that the exceptional circumstances - the unfavourable economic situation and the increase in military spending - do not fully explain the budgetary imbalances observed.
To see the specific report on Germany and Finland: https://aeur.eu/f/jne
It should be noted that regular reports on the economic and budgetary progress of the five euro area countries that have been the subject of a rescue plan - Cyprus, Spain, Greece, Ireland and Portugal - have been published.
For further information: https://aeur.eu/f/jng
With regard to countries outside the euro area, the EU institution is of the opinion that five countries - Denmark, Poland, the Czech Republic, Romania and Sweden - are complying with European fiscal rules.
Turning to Romania, where the public deficit is expected to reach 8.4% of national GDP in 2025 (see EUROPE 13740/16), Mr Dombrovskis highlighted the progress made since the summer, even though “risks remain”. At this stage, he has not recommended suspending the European funds allocated to Bucharest.
As for Hungary and Bulgaria - which will join the euro area at the start of 2026 - these countries are at risk of not complying with the revised Stability Pact.
Macroeconomic imbalances. In addition, the EU institution will carry out in-depth examinations for the seven countries that have already been identified as experiencing macroeconomic imbalances: Greece, Italy, Hungary, Slovakia, Romania, the Netherlands and Sweden.
No additional Member States will be examined in depth.
To see the report on macroeconomic imbalances: https://aeur.eu/f/jnf
‘Human Capital’. With only 39.5% of adults enrolled in lifelong learning programmes in 2022, well short of the EU’s 2021 target of 60% by 2030, the Commission has sent the EU27 an unprecedented draft recommendation on ‘human capital’.
Based around six key principles, the text “focuses on skills gaps in strategic sectors and on new priority areas for action in education and training to support the EU’s competitiveness and preparedness”, explains the Commission.
In the EU, 42 job sectors were considered to be in short supply in 2023, including construction, care, transport and science and math teaching. In the same year, 68% of SMEs were experiencing difficulties in recruiting qualified people.
The recommendation urges Member States to reverse the trend in basic skills, at a time when more and more children are struggling in key areas for the future, such as mathematics.
It aims to: - fill shortages in strategic sectors, particularly in professions requiring skills in science, technology, engineering and mathematics (STEM); - strengthen basic skills in arithmetic, reading/writing and science, paying particular attention to disadvantaged groups and people with disabilities (objective: to reduce to less than 15% the proportion of 15-year-olds who are failing at school); - strengthen vocational education and training and improve the attractiveness of apprenticeships; - invest in education, in particular by taking advantage of European funds; - establish a monitoring system to manage transitions on the labour market.
To see the draft recommendation: https://aeur.eu/f/jnn
Employment. Very similar to the 2024 edition, the new Joint Employment Report 2025 finds that labour markets continue to perform well, with 1.7 million more people finding employment in 2024.
But labour productivity is stagnating in the EU and the question of the quality of our jobs is being raised, says the Commission, while 8% of workers are at risk of poverty. And over 50 million people of working age remain inactive - mainly women, migrants and young people.
For further information: https://aeur.eu/f/jno (Original version in French by Mathieu Bion and Solenn Paulic)