First EU Annual Growth Survey

he European Commission last week presented the first Annual Growth Survey. This is the initial step of the “European Semester”, which is a six-month cycle for coordination of economic policy between EU Member States that was put in place by the EU Institutions last year in response to the economic crisis.

Every second European Semester begins, in January, with the Annual Growth Survey, which sets out the actions which the Commission says are essential to strengthen the recovery in the short-term and keep pace globally.

This year’s Annual Growth Survey is thus the first of what will be an annual assessment by the Commission of the main economic challenges for the EU and the actions needed to address them. It consists of a Communication from the Commission setting out ten “priority actions” to be taken in three key economic areas. The Communication is accompanied by:
• A Progress Report on Europe 2020: reviewing the situation of EU headline targets under the Strategy and the draft National Reform Programmes   
• A Macro-economic Report: assessing the measures with the highest potential for delivering growth.
• A Joint Employment Report: reviewing the EU’s employment situation and labour market related policies throughout the Member States.
• A proposal for a Council Decision on employment guidelines: the proposal is an extension of the employment guidelines adopted in October 2010.

The Commission Communication on the Annual Growth Survey presents economic priorities for the Union in three main areas, with ten priority actions: 

I. Macro-economic pre-requisites for growth: restore confidence by preventing unsustainable debt, disruption of financial markets and low economic growth

1. Implementing a rigorous fiscal consolidation: 
• put fiscal policy back on a sustainable path and 
• support growth and employment;

2. Correcting macro-economic imbalances: 
• restore balance in the banking sector;

3. Ensuring stability of the financial sector: 
• reinforce the regulatory framework for the financial sector 
• restructure banks

II. Mobilising labour markets, creating job opportunities: tackle unemployment and preventing long term exclusion from the labour market by:

4. Making work more attractive;

5. Reforming pensions systems;

6. Getting the unemployed back to work;

7. Balancing security and flexibility;

III. Frontloading growth - enhancing measures: in order to meet the Europe 2010 targets, structural reforms have to be done in services and product markets to improve the business environment

8. Tapping the potential of the Single Market: 
• full implementation of the Service Directive, 
• removal of unjustified restrictions of professional services
• development of the e-commerce and digital industries

9. Attracting private capital to finance growth: 
• bring public and private financing together for priority investments
• facilitate access to finance for SMEs and innovative start-ups

10. Creating cost-effective access to energy: 
• full implementation of the third internal market energy package by Member States
• develop EU-wide standards for energy efficient products

The priority actions set out in the Commission’s Communication are designed to apply to the EU as a whole but country-specific guidance will be provided by the Council to each Member State in accordance with its specific situation. The aim is to have prior coordination between Member States at EU level before national budgets are finalised.

The ten priority actions chosen by the Commission are concentrated on key measures in the context of the Europe 2020 Strategy and aim mainly at the prevention of unsustainable debt, financial market disruption and low economic growth.

The first priority of the Annual Growth Survey is to stabilise budgetary policies through rigorous fiscal consolidation, and to restore the normal functioning of the financial sector. The second priority aims at a reduction in unemployment through labour market reforms and creation of new jobs. Thirdly, in order to ensure the effectiveness of those measures, complementary growth-enhancing reforms should be taken.

Following steps

The Commission proposes that the ten priority actions form the basis of an agreement by the European Council that Member States should commit to their implementation. This prior coordination in the Council is one of the most important elements of the European Semester. The Annual Growth Survey is transmitted to the European Parliament, to the other Institutions and to the national parliaments.

On the basis of the Annual Growth Survey, Member States will identify the main challenges facing the EU and give strategic advice on policies at the Spring meeting of the European Council in March. Based on the guidance of the European Council, by mid-April Member States will present their medium-term budgetary strategies and National Reform Programmes setting out actions they intend to undertake in different areas in order to give a comprehensive response to the crisis.

After the Commission’s assessment of the documents, the Council will issue country-specific policy guidance that Member States should take into account when preparing their budgets for the following year. Each July, the European Council and the Council of ministers will advise on the fiscal and growth strategies before Member States finalise their draft budgets.