Changes from report parliamentary committee draft to plenary report

The European Semester remains a cornerstone for coordinating economic and budgetary policies across Member States within the European Union. The report acknowledges the EU’s resilience in managing recent crises and shocks, enabled by a coordinated policy response that has fostered stability and growth. Maintaining this momentum requires renewed attention to responsible fiscal policies, structural reforms, and productivity-enhancing investments. The report also underscores the budgetary pressures stemming from new demands linked to competitiveness, geopolitical challenges and population ageing. In response, the rapporteur advocates for i) a structural reform agenda, ii) fiscal sustainability and, iii) increase of public expenditure efficiency by means of shifting certain expenditures to the EU level to create European public goods in areas such as defense. Additionally, fostering innovation through a robust, horizontal industrial policy is deemed essential for preserving competitiveness and safeguarding the integrity of the single market.

The report recognizes that the economic outlook for 2024 and 2025 is clouded by uncertainty, with risks predominantly tilted to the downside. The rapporteur expresses concern over the projected rise in the EU’s debt-to-GDP ratio, which poses risks to economic stability and limits fiscal space to react negative shocks and crisis. Effective remedial action is needed to address excessive deficits in eight Member States, and the report welcomes ongoing efforts to correct these imbalances.

A key focus of the report is the functioning of the newly adopted macroeconomic governance framework, which has been in effect since 2024. This framework represents the most significant development in the economic coordination process. The reform aims to establish a simpler, more transparent, and effective system that strengthens fiscal sustainability while promoting counter-cyclical policies. However, the rapporteur highlights the historically weak implementation of fiscal rules in the European Union and stresses that credibility hinges on rigorous application and the equitable treatment of all Member States.

The report specifically addresses the introduction of new national mid-term fiscal-structural plans and Draft Budgetary Plans. It expresses concern over delays in submission by several Member States, which undermine the credibility of the process. The rapporteur also highlights discrepancies in economic assumptions between some Member States and the Commission, which have led to deviations in proposed expenditure paths. Additionally, the report warns against concentrating fiscal adjustments at the end of the adjustment period and calls on the Commission to ensure counter-cyclical policies. The lack of consultation with key stakeholders, including Independent Fiscal Institutions, regional authorities, and national parliaments, is also criticized. The rapporteur emphasizes the need to ensure that reforms and investments included in the plans genuinely contribute to potential GDP growth.

The report concurs with the Eurogroup’s agreement on the need for a sustained fiscal consolidation in 2025, which will result in a contractionary fiscal stance. While this approach is appropriate given the macroeconomic outlook, the report cautions that the mere application of fiscal rules is necessary but insufficient to achieve optimal macroeconomic outcomes. It calls on the Commission and the Council to establish mechanisms ensuring that the aggregate fiscal stance in the EU is responsive to cyclical conditions.

Finally, the rapporteur underscores the importance of implementing Country-Specific Recommendations (CSRs) as a critical element of the European Semester. In addition, the report raises concerns about the declining rate of “fully implemented” CSRs. Member States are reminded of their responsibility to integrate CSRs into their national fiscal plans, particularly in priority areas such as pension system sustainability and healthcare expenditure efficiency.