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European Semester Autumn Package: rebounding stronger from the crisis and making Europe greener and more digital

The European Commission yesterday launched the 2022 European Semester cycle of economic policy coordination. The European Semester Autumn Package includes the Annual Sustainable Growth Survey, Opinions on euro area Draft Budgetary Plans (DBPs) for 2022, policy recommendations for the euro area and the Commission's proposal for a Joint Employment Report.

The package draws upon the Autumn 2021 Economic Forecast which noted that the European economy is moving from recovery to expansion but is now facing new headwinds.

Annual Sustainable Growth Survey

This year's Annual Sustainable Growth Survey (ASGS) puts forward an ambitious agenda for 2022 that steers the EU away from crisis management towards a sustainable and fair recovery that strengthens the EU economy's resilience. It also sets out how the Recovery and Resilience Facility(RRF), the centrepiece of NextGenerationEU - will be more deeply integrated into the new European Semester cycle. This will ensure synergies between these processes and avoid unnecessary administrative burdens for Member States. Moreover, the ASGS lays down how the Sustainable Development Goals (SDGs) will be further integrated into the European Semester to provide a fully updated and consistent SDG reporting across Member States.

The Recovery and Resilience Facility, with a budget of €723.8 billion in grants and loans, will have a central role in building a resilient economy that puts fairness at its heart. With the EU's priorities embedded in the RRF, the European Semester will now better guide Member States in making a success of the green and digital transitions, and building a more resilient EU economy.

The Commission has endorsed 22 national recovery and resilience plans and the Council has approved all of these. This has unlocked pre-financing disbursements of €52.3 billion for 17 Member States since August 2021. Overall, the plans approved by the Council so far represent €291 billion in grants and €154 billion in loans. The focus now turns to implementing the recovery plans on the ground.

RRF pre-financing disbursements have already started providing valuable contributions to the four dimensions of competitive sustainability outlined in the Annual Sustainable Growth Survey:  environmental sustainability, productivity, fairness and macroeconomic stability.

The Commission also calls upon Member States to ensure that national reforms and investments reflect the priorities identified in the Annual Sustainable Growth Survey.

Opinions on the Draft Budgetary Plans of euro area Member States

The Commission's Opinions on the 2022 DBPs are based on the fiscal policy recommendations adopted by the Council in June 2021. They take into account the continued application in 2022 of the general escape clause of the Stability and Growth Pact.

Member States are unwinding the temporary emergency measures and increasingly focusing support measures on sustaining the recovery. RRF grants will in 2022 fund 24% of total recovery support measures. The absorption of RRF grants is set to be frontloaded: Member States are expected to spend over 40% of the total amount of allocated RRF grants, pending the decision to disburse following the fulfilment of the milestones and targets. Nationally financed investment is planned to be preserved or broadly preserved in 2022 in all Member States, as recommended by the Council.

The euro area fiscal stance is projected to be expansionary over the 2020-2022 period. The positive contribution coming from public investment and other capital spending financed by both the national and EU budgets is important, but the main driver of the fiscal expansion in 2021 and 2022 is nationally financed net current primary expenditure. In several Member States including some high-debt ones, the projected supportive fiscal stance is set to be driven by higher nationally financed current spending, or by unfunded tax cuts. In some cases, this is expected to have a sizeable impact on the underlying fiscal position. In about a quarter of Member States the supportive fiscal stance is expected to be driven by investment, both nationally and EU financed.

Euro area recommendation and Alert Mechanism Report

The recommendation on the economic policy of the euro area presents tailored advice to euro area Member States on those topics that affect the functioning of the euro area as a whole. It recommends that euro area Member States take action over 2022-23, individually and collectively within the Eurogroup, to continue to use and coordinate national fiscal policies to effectively underpin a sustainable recovery. The recommendation calls for a moderately supportive fiscal stance to be maintained in 2022 across the euro area and for fiscal policy measures to gradually pivot towards investments that promote a resilient and sustainable recovery. Likewise, it highlights the importance of a transition from emergency to recovery measures in labour markets by ensuring effective active labour market policies, in line with the Commission Recommendation on an Effective Active Support to Employment following the COVID-19 crisis (EASE). Euro area Member States should maintain an agile fiscal policy to be able to react if pandemic risks re-emerge. Once economic conditions allow, euro area Member States should pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. The recommendation also calls for work to continue on completing the Banking Union, strengthening the international role of the euro, and for supporting the process of creating a digital euro.

The Alert Mechanism Report (AMR) is a screening measure to detect potential macroeconomic imbalances. This year's AMR concludes that in-depth reviews (IDRs) are warranted for 12 Member States: Croatia, Cyprus, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Romania, Spain, and Sweden. These Member States were subject to an IDR in the previous annual Macroeconomic Imbalance Procedure (MIP) surveillance cycle, and were considered to be experiencing imbalances (Croatia, France, Germany, Ireland, the Netherlands, Portugal, Romania, Spain, and Sweden) or excessive imbalances (Cyprus, Greece, and Italy). The new IDRs will assess how those imbalances have developed, analysing their gravity, evolution and the policy response delivered by Member States, to update existing assessments and assess possible remaining policy needs.

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