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In November, the Commission assessed the first set of medium-term plans, the draft budgetary plans of the euro zone member states and revised the excessive deficit procedure; presently, the second Autumn Package adopted this December by the new Commission’s staff focused on promoting policy actions to benefit the euro area, monitoring macroeconomic imbalances and analyzing the Semester’s social dimension.
Introduction
The European Semester Autumn Package marks the launch of a new cycle of the European Semester: in 2024, the Autumn Package was split into two parts. The first (fiscal) part of the Autumn Package, adopted at the end of November by the previous Commission College, launched the implementation phase of the new economic governance framework. The second part of the Autumn Package, adopted this December by the new Commission, includes the Alert Mechanism Report, the Euro Area Recommendation and the proposal for a Joint Employment Report. Thus, the second part of the Autumn Package aligns with the new College taking office this December; thus, there are the following key policy areas under assessment: competitiveness, resilience, macro-economic and financial stability.
The European Semester second Autumn Package includes the following components: a) proposal for a recommendation on the economic policy of the euro area for 2025; b) the 2025 Alert Mechanism Report; and c) proposal for a Joint Employment Report for 2025.
Note. There are 20 EU euro area states and 7 non-eurozone countries: Bulgaria, Czechia, Denmark, Hungary, Poland, Romania and Sweden. These states are not “invited” to the euro zone as they, e.g. could not meet vital Maastricht criteria, which include, for example reducing excessively high budget deficit, tackling inflation and moderating public debt, etc.
Background
The Commission has acknowledged that the EU member states were confronted with several structural challenges related to low productivity growth, population ageing as well as green and digital transformation development. These and other issues are dealt with in the context of heightened global tensions and fragmentation; the urgent actions are needed in order to overcome threatening socio-economic consequences.
The policy guidance reflected in the Autumn Packages are expected to support the member states to preserve macroeconomic stability while promoting growth, fiscal sustainability and improve their competitiveness.
In the supplemented EU-wide joint employment report there is a vital country-specific analysis through the new economic governance framework.
As to the euro area recommendation, the Commission calls on the member states to take necessary actions in order to improve competitiveness and foster productivity across the euro area. Concretely, these actions include: – improving access to funding for businesses; – promoting innovation; – improving the business environment by reducing administrative burdens and regulatory complexity; – removing obstacles to investment and supporting public and private investment in common priorities, such as the green and digital transitions and defence; – further developing skills in the workforce.
Finally, the recommendation also calls on euro area member states to comply with the new fiscal framework: sound public finances are a prerequisite for macroeconomic stability and sustainable economic growth.
The Draghi report (revealed this September) highlighted the structural barriers that can hinder the achievement of the EU-wide objectives. The report underlined that the Commission “will soon set proposals to address the challenges”, including the “new competitiveness compass”.
Hence, the new framework will assist the EU member states in reducing public debt in a gradual and realistic way.
More on Draghi report in our previous articles: e.g. https://www.integrin.dk/2024/09/09/eu-wide-competitiveness-challenges-and-perspectives-in-draghi-report/
The EU-27 is presently in the challenging global context, which underlines the importance of coordinating economic and social policies among the member states: thus, the European Semester is and will remain the key tool for such coordination. “It will make a crucial contribution to achieving the new Commission’s broader objective of competitiveness and productivity, while strengthening our social market economy”, underlined Commissioner Dombrovskis (18 December 2024).
Source: https://ec.europa.eu/commission/presscorner/detail/en/statement_24_6526
Alert Mechanism Report
The report launches the annual macroeconomic imbalance procedure, which aims to detect, prevent and correct imbalances. There are three key findings:
= First, cost competitiveness concerns remain relevant for some EU states; high inflation in the past years has put pressure on competitiveness, particularly where it was already weaker.
= Second, the EU has seen recently a reduction in the high levels of debt in recent years, driven by high nominal growth; however, this effect is now fading out, and in some states public debt remains high and is projected to rise again.
= Third, house prices require attention where they show signs of overvaluation and continue to increase.
= Fourth, looking at individual member states, the Commission will again be carrying out in-depth reviews for the nine member states identified last spring as having imbalances or excessive imbalances: Cyprus, Germany, Greece, Italy, Hungary, the Netherlands, Romania, Slovakia, and Sweden.
In addition, an in-depth review will be carried out to assess the risk of newly emerging imbalances in Estonia which is experiencing a recession and faces accumulating cost competitiveness losses driven by strong cost pressures, a worsening current account, rising house prices and household borrowing.
However, the selection of the EU member states for in-depth reviews is a first step to allow monitoring the evolution of previously identified imbalances and assess the risk of newly emerging imbalances in the selected states. The Commission will present its conclusions on the existence of imbalances next spring.
Main elements in the second Autumn Package
This year’s euro area recommendations focus on three key policy areas: competitiveness, resilience, and macro-economic and financial stability.
= On competitiveness, the recommendations aim to enhance productivity and boost innovation by deepening the Single Market and reducing regulatory burdens to improve the business environment. They emphasize the importance of innovation through upskilling, reskilling and increased R&D investment, while promoting targeted industrial policies that do not disrupt the level playing field. Additionally, developing a European Savings and Investment Union, by strengthening links between the Capital Markets Union (CMU) and the Banking Union (BU), is a priority, as is mobilizing venture capital to support start-ups and scale-ups.
= Regarding resilience, the focus is on fostering stronger and more adaptable national economies. Increasing labour market participation, through measures supporting underrepresented groups – women, older workers, younger workers – as well as managed legal migration, is essential, as is promoting wage and productivity growth while ensuring competitiveness dynamics are reflected in wage bargaining. Social protection and inclusion systems need to adapt to evolving needs including access to housing. The implementation of an EU-wide strategy for electrification and green transition, supported by cross-border interconnection grids is also essential for resilience.
= For macroeconomic and financial stability, the recommendations highlight the importance of prudent fiscal policies and maintaining macro-financial stability. This includes compliance with the new fiscal framework to improve debt sustainability and defining fiscal strategies that enhance the quality and efficiency of public finances. Monitoring financial stability risks is also critical to mitigating potential vulnerabilities.
Source and citations in: https://ec.europa.eu/commission/presscorner/detail/en/qanda_24_6428
Perspectives
As soon as the Recovery and Resilience Facility, RRF is coming to an end in 2026, the Spring Package predicts a gradual move towards more comprehensive set of country-specific recommendations. The Commission will further strengthen analysis and national ownership of these recommendations by basing them on the improved use of structured dialogues with the member states, social partners and other stakeholders.
This more comprehensive policy guidance will help to address the country-specific challenges identified in the context of the European Semester.
More about European economy’s recent prognoses for 2024-2026 in: https://www.integrin.dk/2024/11/16/european-economy-in-recent-prognoses-for-2024-2026/
The Commission will present proposal for the euro area recommendations at the Eurogroup on 20 January 2025 and at the Economic and Financial Affairs Council next day with the aim of exchanging preliminary views. Following preparatory work in the Council’s committees in January 2025, the proposal is expected to be agreed by the Eurogroup on 17 February 2025 and approved by the Economic and Financial Affairs Council on 18 February 2025. Endorsement by the European Council is expected in March, with the formal adoption by the Economic and Financial Affairs Council later in April.
Note. At the EU summit in Lisbon in 2000 the so-called Lisbon Strategy was adopted, in which the European leaders decided to make “European economy the most competitive in the world” with a key message to “make a decisive leap in investment for higher education, research and innovation”. A quarter of a century later, Europe has not only failed to achieve its goal, but it’s fallen well behind both the US and China; the EU never even achieved its aim to spend 3 percent of the GDP on R&D, the main driver of economic innovation. In fact, spending on such research by European companies and the public sector remains pegged at about 2 percent, about where it was in 2000.
Reference to: https://www.politico.eu/article/europe-economic-apocalypse/?utm_source=email&utm_medium=alert&utm_campaign=Europe%E2%80%99s%20economic%20apocalypse%20is%20now
More information in the following Commission’s web-sites: = Press release – The Second part of the European Semester Autumn Package addresses Socio-Economic Challenges for 2025; = 2025 European Semester Autumn package – Documents; = Autumn 2024 Economic Forecast; and = The European Semester.