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European Semester winter package: assessing Member States' progress on economic and social priorities
* Romania made limited progress. Recent legislative initiatives create risks for the functioning of the financial sector and may harm private investment.
In its annual assessment of the economic and social situation in the Member States, the European Commission stresses the need to promote investment, pursue responsible fiscal policies and implement well-designed reforms.
Challenges vary significantly across countries and call for appropriate and determined policy action.
This review of country-specific challenges comes against the backdrop of a European economy that is expected to grow for the seventh consecutive year in 2019, but at a more moderate pace. Employment is at a record high and unemployment at a record low. Public finances have also improved across the board, although some countries are still facing high levels of debt. However, challenges remain. Productivity levels remain subdued, population ageing is intensifying and rapid technological change is having a significant impact on labour markets. Real household income remains below pre-crisis levels in some Member States. Youth unemployment has been significantly reduced, but is still unacceptably high in some Member States. At a time of more pronounced global uncertainty, it is crucial that EU Member States step up their action to boost productivity, improve the resilience of their economies and ensure that economic growth benefits all citizens.
Following the publication in November of the Annual Growth Survey and the recommendation on the economic policy of the euro area, which set out the priorities at European level, today's 28 Country Reports zoom in on the national dimension of the European Semester. The reports provide a detailed analysis of country-specific economic and social challenges. They will serve as the basis for discussions with Member States of their national policy choices ahead of their national programmes in April, and will lead to the formulation in late spring of annual Country-Specific Recommendations.
As a novelty of today's package, the Commission launches a discussion on investment challenges and priorities in the Member States and sets out first ideas as to how EU funds, in particular EU Cohesion Policy funds, can help in the forthcoming programming period 2021-2027. This will also serve to ensure greater coherence between the coordination of economic policies and the use of EU funds, which are a significant part of public investment in several Member States.
Addressing macroeconomic imbalances
In November, the Commission launched in-depth reviews for 13 Member States to analyse whether they were experiencing macroeconomic imbalances, and if so, how serious they were. The Commission has now concluded that imbalances or excessive imbalances exist in all of these 13 Member States, but the gravity of the imbalances has diminished in some cases. The summary of the in-depth reviews outcome is as follows:
- Bulgaria, Germany, Spain, France, Croatia, Ireland, the Netherlands, Portugal, Romania and Sweden are experiencing economic imbalances.
- Cyprus, Greece and Italy are experiencing excessive imbalances.
The Commission will continue reviewing developments and policy measures taken by all Member States with imbalances or excessive imbalances through specific monitoring in the context of the European Semester.
What next?
The Council is expected to discuss the Country Reports together with the results of the in-depth reviews. In the coming months, the Commission will hold bilateral meetings with the Member States in light of the analysis of the respective reports. The Vice-Presidents, Commissioners and Commission services will visit Member States to meet governments, national parliaments, social partners and other stakeholders and discuss the findings of the reports. These visits will also include dedicated discussions of the annexes on how future EU Cohesion Policy funds could help address specific investment needs in the Member States.
In April, Member States are expected to present their National Reform Programmes, detailing national reform priorities, and their Stability Programmes (for euro area countries) or Convergence Programmes (for non-euro area countries), setting out their multiannual fiscal strategies.
Based on all these programmes, the Commission will present in spring its proposals for a new set of Country-Specific Recommendations, targeting the key challenges to be addressed for 2019-2020. The recommendations will also include fiscal guidance. They will be based on the Commission Spring Forecast which will incorporate final 2018 budgetary data validated by Eurostat.
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Romania is experiencing imbalances. Vulnerabilities are linked to cost competitiveness losses and a widening current account deficit in a context of an expansionary fiscal policy and an unpredictable business environment.
Recent legislative initiatives create risks for the functioning of the financial sector and may harm private investment.
The current account deficit has been growing on the back of buoyant imports, mainly for consumption purposes, and is forecast to widen further. The strong nominal GDP growth has nevertheless implied that the negative Net International Investment Position has been improving for some years but this may stall with the persistency of the current account deficits and lower GDP growth looking forward.
Demand is fuelled by strong wage growth, inter alia linked to hikes in public wages and the minimum wage, which has translated into very substantial increases in unit labour costs. Despite cost competitiveness losses, so far export market shares have been growing.
The expansionary fiscal stance, in a context of strong GDP growth, is forecast to continue thus contributing to buoyant private consumption dynamics. After declining for some years, the government debt ratio is projected to increase.
Frequent and unpredictable legislative changes contribute to a weaker and uncertain business environment, with negative repercussions on business decisions and investment. Recent legislative initiatives with impact on banks' risk threaten the functioning of the financial sector and may hinder investment through both a tighter credit market and a shallower capital market with weaker institutional investors. In other areas, progress with reforms has slowed down or reversed.
(Please find Country Report – Romania: ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-country-report-romania_en.pdf)