3 European Semester: Annual Growth
Survey
| (a)
(35532)
15803/13
COM(13) 800
(b)
(35535)
16348/13
COM(13) 801
|
Commission Communication: Annual Growth Survey 2014
Draft Joint Employment Report accompanying the Communication from the Commission on Annual Growth Survey 2014
|
| Legal base | —
|
| Documents originated | 13 November 2013
|
| Deposited in Parliament | 20 November 2013
|
| Department | HM Treasury
|
| Basis of consideration | EM of 3 December 2013
|
| Previous Committee Report | None
|
| Discussion in Council | Economic and Financial Affairs; Employment, Social Policy, Health and Consumer Affairs; Competitiveness; Environment; Education; Youth; Culture and Sport; Justice and Home Affairs and General Affairs Councils before the European Council in March 2014
|
| Committee's assessment | Politically important
|
| Committee's decision | For debate in European Committee B, together with an accompanying Commission Report on a single market for growth and jobs and the Alert Report Mechanism for 2014
|
Background
3.1 In March 2010 the Commission proposed a "Europe 2020
Strategy", to follow on from the Lisbon Strategy. This strategy
is aimed at promoting smart, sustainable and inclusive economic
growth. It was endorsed by the March 2010 European Council. During
the latter half of 2010 the Council adopted, in the context of
the Europe 2020 Strategy, broad guidelines for the economic policies
of the Member States and the EU and guidelines for the employment
policies of the Member States, together the "Europe 2020
integrated guidelines".
3.2 On the basis of two Commission Communications,
Reinforcing economic policy coordination and Enhancing
economic policy coordination for stability, growth and jobs: tools
for stronger EU economic governance, and of the Van Rompuy
Task Force report, Strengthening economic governance in the
EU, the June, September and October 2010 European Councils
considered and endorsed measures to increase coordination of EU
economic governance, including strengthening the Stability and
Growth Pact and introducing a "European Semester".
3.3 The European Semester is an EU-level framework
for coordinating and assessing Member States' structural reforms
and fiscal/budgetary policy and for monitoring and addressing
macroeconomic imbalances. It attempts to exploit the synergies
between these policy areas by aligning their reporting cycles,
which would tie together consideration of National Reform Programmes
(reports on progress and plans on structural reforms, under the
Europe 2020 Strategy) and Stability and Convergence Programmes
(reports on fiscal policy, under the Stability and Growth Pact).
3.4 The European Semester cycle begins with an
Annual Growth Survey by the Commission, followed by a series of
overarching and country specific documents from the Commission
and culminating in examination of the overall and country-specific
situations by the European Council.
3.5 The Annual Growth Survey is accompanied this
year by a Commission Report: A single market for growth and
jobs: an analysis of progress made and remaining obstacles in
the Member States — contribution to the Annual Growth Survey
2014.[14]
3.6 An element of the European Semester process
is the Macroeconomic Imbalances Procedure (MIP). The MIP is a
mechanism designed to identify and, if necessary, correct harmful
macroeconomic imbalances across the EU, which were a key cause
of the current sovereign debt crisis. The first stage of the MIP
is publication by the Commission of an annual Alert Mechanism
Report. The Alert Mechanism Report for the 2014 cycle is
dealt with elsewhere in this Report.[15]
The documents
3.7 The Commission's Annual Growth Survey (AGS)
2014, document (a), sets out the Commission's priorities for action
at national and EU level over the next twelve months to support
economic growth and employment. The AGS 2014 is accompanied by
two reports: the draft Joint Employment Report, document (b),
and a Commission Staff Working Document: An overview of progress
in implementing the Country Specific Recommendations by Member
States.[16] The Commission
sets out the same five reform priorities as last year, as shown
in the following paragraphs, but "is proposing to adapt their
implementation to the changing economic and social circumstances"
described in its introduction.
Priority 1: Pursuing differentiated growth-friendly
fiscal consolidation
3.8 The Commission:
- notes that progress in fiscal
consolidation is noticeable at country level, with a number of
Member States having already reached sound budgetary positions;
- considers that debt levels in many Member States
remain high and therefore continues to advocate growth friendly
fiscal consolidation;
- favours expenditure led consolidation, while
recognising the importance of an efficient, growth friendly mix
of fiscal measures;
- considers that the Stability and Growth Pact
is the right framework for pursuing differentiated fiscal consolidation;
- says, within this context, that it is important
for Member States to protect and promote longer term investment
in education, research, energy and climate action and to reinforce
the effectiveness of employment services; and
- considers action on improving tax compliance
important.
Priority 2: Restoring normal lending to the economy
3.9 The Commission:
- considers that financial conditions
have improved in the past year, but recognises that lending conditions
for businesses have not yet returned to normal;
- says that important steps have been taken at
EU level to restore lending to the economy;
- considers that a Banking Union is a core element
of this for eurozone stability and the functioning of the single
market;
- thinks that, at national level, Member States
should closely monitor private debt and financial risks such as
real estate bubbles; and
- says that Member States should also promote alternatives
to bank financing, such as venture capital, SME bonds and alternative
stock markets.
Priority 3: Promoting growth and competitiveness
for today and tomorrow.
3.10 The Commission:
- notes a rapid pace of restructuring
due to crisis-related adjustment processes and structural reforms
in the Member States;
- considers that Member States should prioritise
implementing their European Semester Country Specific Recommendations;
- recommends a focus on new sources of growth and
competitiveness in knowledge-intensive and high productivity activities;
- recognises that individual Member States will
need to sequence reforms according to national situations but
stresses the need to open services markets; and
- sees increasing resource efficiency and decreasing
dependence on external energy to be important elements of the
EU's growth strategy.
Priority 4: Tackling unemployment and the social
consequences of the crisis.
3.11 The Commission:
- highlights the risk of unemployment
becoming increasingly structural, with potentially significant
negative impacts on growth;
- considers immediate priority should be given
to reforms that increase participation in the labour market;
- emphasises the role of the social partners in
the design and implementation of appropriate policy responses
to the issues of an aging workforce and a gender gap in the labour
market;
- suggests that to improve employability and support
access to jobs, Member States should reduce the tax wedge on labour,
reduce early school-leaving, improve life-long learning, facilitate
the transition from education to work, and implement 'youth guarantee'
schemes;
- says social protection systems should address
access to health services, childcare, housing and energy supply;
and
- suggests that the link between social assistance
and activation measures should be strengthened, for instance through
'one-stop shops'.
Priority 5: Modernising public administration.
3.12 The Commission:
- recognises ongoing efforts
to improve efficiency gains through increasing co-operation between
different layers of administration in several Member States;
- considers there is potential to reduce the administrative
burdens on businesses;
- notes the progress at EU level of streamlining
and simplifying legislation through the ongoing regulatory fitness
and performance programme; and
- considers increased cooperation between tax administrations
as central to fighting tax fraud and evasion.
3.13 The accompanying Commission Staff Working
Document provides an overview of each Member State's implementation
of the Country Specific Recommendations. For the UK the Commission:
- recognises the Government's
actions on fiscal consolidation, as well as the actions taken
to improve access to credit;
- notes the package outlining a pipeline of £100
billion investments in public infrastructure and reforms to stimulate
private sector investment;
- remains concerned about youth unemployment and
the potential impacts of measures aimed at boosting demand for
housing, in the absence of an adequate supply response; and
- notes that no action has been taken (or is being
planned) on the taxation recommendations in the Country Specific
Recommendations.
3.14 On Belgium the Commission comments that:
- it has made progress in consolidating
its public finances, stabilising its banking sector, curbing inflationary
pressures and improving the functioning of the labour market;
and
- further measures will, however, be needed to
safeguard public finances in the long-term, reform retail and
professional services and match education outcomes and labour
market requirements.
3.15 The Commission says that:
- Bulgaria has made significant
strides to improve the sustainability of its public finances and
fiscal framework; and
- it needs, however, further structural reforms
to improve its regulatory, administrative and judicial systems
which act as a constraint on the economy.
3.16 For the Czech Republic, the Commission notes
that:
- the budget deficit has fallen
bringing an end to the excessive deficit procedure, but the quality
of the fiscal consolidation should be improved; and
- fighting corruption and increasing participation
in the labour force remain priorities.
3.17 On Denmark the Commission says that:
- it has introduced measures
to address the risks posed by high levels of household debt;
- a Productivity Commission is currently analysing
the weak productivity growth in the economy and the potential
contribution of non-optimal competition levels of the services
sector; and
- important reforms have been carried out to increase
employment but further efforts are needed to assist those at the
margins of the labour market.
3.18 The Commission notes that:
- in 2012, Germany ran a small
fiscal surplus, but further public investments in research and
education are recommended;
- Germany has strengthened the regulatory and supervisory
framework in the financial sector, but needs to take further measures
to support consolidation in the banking sector;
- there has been progress in reducing long-term
unemployment, but more could be done to get rid of disincentives
to second earners; and
- similarly, only marginal reforms have been carried
out to open up service sectors.
3.19 On Estonia the Commission:
- says that it can be described
as having an economy with a sound fiscal position, which is outperforming
the EU average in GDP growth and where the labour market has recovered
quickly from the 2008-09 crisis; and
- emphasises that special attention will be required
to ensure that education outcomes better match labour market needs.
3.20 The Commission says that:
- Ireland's GDP growth is forecast
to be weak this year (0.3%), but fiscal targets are still expected
to be met;
- the deleveraging and restructuring of domestic
banks has progressed well and a comprehensive assessment of banks'
balance sheets is due to be carried out shortly ahead of the upcoming
Single Supervisory Mechanism stress test; and
- the government continues to implement structural
reforms, but some issues remain work in progress.
3.21 In relation to Greece the Commission comments
that:
- it has continued to make progress;
- recapitalisation of the four core banks has been
completed and major reforms in the areas of labour market, healthcare
and public financial management implemented; and
- further reforms are needed, particularly to increase
the effectiveness of the public revenues system and reform of
public administration.
3.22 For Spain the Commission notes that:
- it is committed to correct
its excessive deficit by 2016 and has reformed its pension system;
- the financial sector programme is on track, proposals
to improve the internal market have been submitted to Parliament
and reform of professional services is under way; and
- it is also taking steps to reform its public
administration and continues to implement active labour market
policies with a focus on improving employment for young people.
3.23 The Commission:
- notes France as having made
significant consolidation efforts but states that planned measures
mainly focus on the revenue side;
- acknowledges measures to improve competitiveness
and steps taken to improve the functioning of the labour market;
but
- emphasises that further reforms are needed to
reduce the cost of labour.
3.24 The Commission notes that, although Croatia
has achieved some progress, important fiscal and structural challenges
remain, and that there were no Country Specific Recommendations,
as Croatia was not an EU member at the time they were issued.
3.25 For Italy the Commission says that:
- its fiscal consolidation efforts
since 2011 have corrected the excessive deficit, but public debt
remains a major burden;
- a targeted asset quality review was conducted
to strengthen the banking sector;
- while some measures have been taken to improve
growth and competitiveness, further work is needed;
- in 2012 a reform was adopted to address rigidity
and segmentation in the labour market, but implementation is slow;
and
- high unemployment among youth and women remains
of high concern.
3.26 The Commission comments that Cyprus has
made good progress on fiscal consolidation and banking sector
reform in light of a difficult economic situation, but more can
be done on unemployment, growth and competitiveness.
3.27 The Commission notes that:
- Latvia undertook a deep fiscal
consolidation which enabled it to reduce the government deficit
from 8.1% of GDP in 2010 to 3.1% in 2012 and exit the excessive
deficit procedure in June 2013; and
- privatisation of several banks is on track and
financial supervision has been strengthened.
3.28 The Commission says that:
- although Lithuania exited the
excessive deficit procedure in June, its progress towards meeting
its medium-term objectives was below the minimum requirements;
- it has much room to increase its tax revenues;
and
- it has improved its competitiveness due to substantial
wage reduction and improvements in non-price competitiveness.
3.29 For Luxembourg the Commission says that:
- it has made progress in its
fiscal consolidation, but further efforts will be needed to ensure
the long-term sustainability of public finances; and
- it needs measures to improve the wage-setting
system and diversify the structure of the economy.
3.30 On Hungary the Commission notes that:
- the budget deficit has fallen,
allowing it to exit the excessive deficit procedure, but risks
remain;
- good progress on reducing foreign exchange debt
and improving SME access to credit; and
- more can be done to enhance the business environment
and increase participation in the labour force.
3.31 The Commission says that:
- sustainability of Malta's public
finances in the long-term remains challenging;
- the ongoing increases in the retirement age introduced
to reform the pension system are too gradual; and
- measures have been taken to address shortcomings
in the transport sector and to increase the employment rate of
women.
3.32 In relation to the Netherlands the Commission
comments that:
- its measures to improve the
functioning of pension funds should be expected to reduce fiscal
subsidies to the system, while supporting the employability of
old workers; and
- further reforms are necessary to address significant
structural distortions in the housing market and to increase the
growth potential of the economy.
3.33 On Austria the Commission says that:
- it has successfully reduced
its general government deficit, but the overlapping responsibilities
between federal, regional and local levels represent a challenge
that needs to be addressed;
- regarding restructuring of (partially) nationalised
banks, further action is needed and budgetary risks need to be
closely monitored; and
- further efforts are needed to facilitate competition
and the provision of services.
3.34 For Poland the Commission:
- says that it has made insufficient
effort on fiscal deficit reduction;
- recognises some progress on competitiveness,
education, unemployment and the energy sector; but
- suggests more can be done.
3.35 In the case of Portugal the Commission comments
that:
- fiscal consolidation has progressed
over the past three years;
- public sector reforms continue to show benefits;
- banks have significantly improved capital ratios
and are in a good position to weather short periods of uncertainty
and cope with a potential further deterioration in asset quality;
- structural reforms are well advanced and important
progress has been made in the areas of judiciary, network industries,
housing, services and regulated professions; and
- further progress is still needed in the transport
sector.
3.36 The Commission says that:
- although Romania exited the
excessive deficit procedure in June, it faces challenges in maintaining
fiscal sustainability and tax compliance;
- measures to strengthen the financial sector have
been undertaken;
- it faces important competitiveness challenges
due to low productivity and inadequate investment in research
and development; and
- weak administrative capacity limits the absorption
of EU funds.
3.37 For Slovenia the Commission notes that:
- the fiscal framework is undergoing
further changes after a constitutional amendment setting the basis
for the general government budget balance/surplus rule was adopted
this year;
- the Bank of Slovenia has initiated an independent
asset quality review and stress testing exercise covering 70%
of the banking sector; and
- certain positive trends in judicial efficiency
have continued.
3.38 According to the Commission:
- Slovakia embarked on an intensive
consolidation effort, but since this effort also relies on one-off
measures, it will need to be replaced by more structural measures
in the future;
- it needs to strengthen institutions, human capital,
innovative capacity and the business environment and to address
the challenge of supporting more knowledge-based growth; and
- it has yet to act on enhancing social inclusion
of marginalised communities.
3.39 On Finland the Commission says that:
- public finances have been overall
sound, but the worsening of the economic climate has made it difficult
to achieve the expected results in terms of moving towards the
medium-term budgetary objective;
- on growth and competitiveness, it has introduced
various measures to address the challenges that threaten the country's
competitive position; and
- success depends on the details of the reform,
which have not been published so far.
3.40 For Sweden the Commission comments that:
- some measures have been implemented
over the past years which have contributed to the stabilisation
of household debt, although at a high level;
- while Sweden is a top performer according to
most research and development indicators, it faces a number of
challenges that could threaten the country's competitive position
in the medium-term; and
- the labour market is generally performing well
but there are groups with weak attachment on the labour market,
notably youth and people with a migrant background, which the
government is taking steps to address.
3.41 The Commission asserts that the economic
situation in the eurozone remains challenging, noting that:
- coordination of economic policies
in the eurozone needs to be further strengthened;
- Member States are invited to strengthen further
the focus on a growth friendly fiscal policy anchored in a medium
term fiscal framework;
- further progress towards a Banking Union, which
needs to be completed urgently, is being made;
- there is a large divergence in performance regarding
structural reform; and
- the stability of the Economic and Monetary Union
necessitates ambitious action by Member States to ensure the proper
functioning of labour markets.
3.42 The draft Joint Employment Report (JER)
for 2014, document (b), accompanies the AGS — it takes stock
of employment reforms in Member States and expands on the key
employment messages contained in the AGS. The document:
- presents a difficult employment
situation in many Member States, including in the eurozone, and
outlines priorities for relevant reforms;
- recognises progress on UK reforms, for example,
the Youth Contract, improvements to childcare and parental leave,
traineeships and apprenticeships;
- focuses on progress in areas particularly difficult
to reform for other Member States, for example, wage indexation,
undeclared work, and barriers to longer working lives; and
- includes for the first time a "Social and
Employment Scoreboard".
3.43 This scoreboard presents a small set of
headline indicators covering unemployment rate, youth unemployment
rate, household disposable income, the risk of poverty and inequality.
The indicators are taken from the Joint Assessment Framework EU2020
for tracking/monitoring on Employment Guidelines.[17]
The Commission justifies the inclusion of this scoreboard as early
warning of potential social and employment "spill-over"
effects that could threaten the smooth functioning of the Economic
and Monetary Union.
The Government's view
3.44 The Economic Secretary to the Treasury (Nicky
Morgan) comments first on the AGS 2014, document (a), saying that
the Government broadly welcomes it and the Commission's continued
focus on fiscal consolidation, promoting economic growth and employment.
She comments further that:
- structural reforms at EU level
are an essential complement to the reform efforts of individual
Member States;
- the Government supports the five priority areas
identified in the AGS; and
- it welcomes the emphasis on regulation, whether
the provenance of future regulation is the EU or national governments.
3.45 On the Commission Staff Working Document
giving an overview of each Member State's implementation of the
Country Specific Recommendations, which accompanies the AGS, the
Minister says that:
- the Government supports the
Commission's emphasis on moving forwards with fiscal consolidation
and structural reforms, although it believes it is too early to
assess the implementation of many of the Country Specific Recommendations;
- the Government's economic plan is designed to
equip the UK to succeed in a global race, to secure a stronger
economy and a fairer society and to help people who aspire to
work hard and get on;
- this strategy is restoring the public finances
to a sustainable path and the deficit has been reduced by a third
as a percentage of GDP in the three years from 2009-10; and
- the UK is seen as a relative safe haven, with
interest rates remaining near historical lows and in line with
other core economies, helping keep interest payments lower for
households, businesses and the taxpayer.
3.46 The Minister continues that the Government
does not agree with several of the key factual assertions in the
Commission's assessment of the UK's implementation of the Country
Specific Recommendations, saying that:
- while the Government agrees
that "The fiscal consolidation strategy is being implemented
and is moving in the right direction", it does not agree
that "the average pace has slowed over the period";
- the UK's average pace of consolidation is not
slowing over the period — total discretionary consolidation
in nominal terms over the period 2010-11 to 2015-16 is in line
with plans announced in the 2010 Budget;
- there is £130 billion of total discretionary
consolidation now planned by 2015-16 compared with £128 billion
under 2010 Budget plans;
- furthermore, the latest IMF forecasts show a
consistent 1% of GDP annual improvement in the primary balance
over 2013, 2014 and 2015;
- while the Government agrees that "Net exports
have started to contribute positively to growth", it does
not agree that "this was due to a large fall in imports as
opposed to a rebound in exports";
- from 2008 to 2012 (the five years of the indicator),
export growth has added 0.8% of growth, while imports falling
has added 0.2% to growth — so the positive net trade contribution
over the period is driven more by exports than by imports;
- the Government disagrees with the assertion that
the UK has "the highest at-risk-of-poverty rate for lone
parent households in the EU28," as this is factually incorrect;
- according to the EU's own Eurostat statistics
for single parents with dependent children the rate for the UK
is 33.5% (2011, the latest figures available);
- this is lower than the EU 28 Average of 34.6%,
and the UK scores better than Germany, Spain and France on this
measure; and
- the Government also objects to the Commission's
comments that the UK is not doing enough to support housing supply
— the Government has liberalised the planning system, creating
the right market conditions to support developers and is directly
providing affordable housing.
3.47 Turning to the draft JER, document (b),
the Minister says that:
- the Government welcomes the
continued focus on major labour market challenges across the EU,
including progress with implementing Country Specific Recommendations;
- it disagrees with the automatic inclusion of
non-eurozone Member States in the Social and Employment Scoreboard
in the JER, which it considers are a distraction from the main
messages of the report; and
- it recalls that, in line with the October European
Council conclusions, "the strengthened economic policy coordination
and further measures to enhance the social dimension in the Euro
area are voluntary for those outside the single currency."
Conclusion
3.48 The Annual Growth Survey, document (a),
is one important document in the opening stage of the 2014 European
Semester. So we recommend that it be debated in European Committee
B, together with the other important document, the Alert Mechanism
Report, dealt with elsewhere in this Report.[18]
We recommend also that the documents accompanying the Annual Growth
Survey, the draft Joint Employment Report, document (b), and the
Report on a single market for growth and jobs,[19]
be included in the debate.
3.49 This debate should take place before
the relevant functional Councils consider the documents in preparation
for the March 2014 European Council.
14 (35534) 16171/13 on which we will be reporting shortly. Back
15
See (35533) 15808/13: chapter 4. Back
16
See http://ec.europa.eu/europe2020/pdf/2014/csrimpl2014_swd_en.pdf. Back
17
See http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=972&furtherNews=yes. Back
18
Op cit. Back
19
Op cit. Back
|
