European Commission launches new economic governance framework; Commission presents recommendations for 21 Member States' fiscal plans and opinions on 17 euro area budgets

What is included in this year's European Semester Autumn Package? 

This year, the Commission is presenting the European Semester Autumn Package in several parts.

Today, the Commission is presenting the first part of the Autumn Package, which launches the implementation phase of the new economic governance framework. It includes:

• A Chapeau Communication recalling the objectives of the new economic governance framework and providing an overview of the documents to be adopted, kicking off the implementation phase of the new rules.
• The Commission's Recommendations for Council Recommendations on the medium-term plans for 21 Member States.
• The Commission's Opinions on 2025 draft budgetary plans for 17 euro area Member States.
• A Report under Article 126(3) of the Treaty on the Functioning of the European Union (TFEU) assessing the respect of the 3% of GDP deficit criterion within the framework of the excessive deficit procedure.
• Commission Recommendations for Council Recommendations under Article 126(7) TFEU with a view to bringing an end to the situation of an excessive deficit for Member States under an excessive deficit procedure.
• Post-programme surveillance reports for Cyprus, Greece, Ireland, Portugal and Spain.

Which elements are not included this year? Why is the European Semester Autumn Package being presented in several parts this year?

The European Semester Autumn Package is usually the occasion for the Commission to lay out its economic and social policy priorities for the year ahead through the Annual Sustainable Growth Survey, the Alert Mechanism Report, the Euro Area Recommendation and the proposal for a Joint Employment Report.

These documents will be adopted once the new College takes office to reflect its priorities.

OPINIONS ON DRAFT BUDGETARY PLANS

How did the Commission assess the draft budgetary plans for 2025?

The Commission's assessment of the draft budgetary plans of euro area Member States allows it to examine Member States' compliance with the EU's fiscal framework and assess the euro area fiscal stance and overall budgetary situation and prospects.

The Commission has assessed whether the draft budgetary plans represent appropriate first steps to implement euro area Member States' medium-term plans. The Commission has published Opinions assessing 17 draft budgetary plans.

Three Member States (Austria, Belgium and Spain) did not yet submit a draft budgetary plan as no budget was submitted to their national Parliaments and are thus not included in the assessment presented in the Autumn Package.

The Commission's assessment is focused on net expenditure growth in 2025 and in 2024-2025 taken together. In line with the qualitative fiscal country-specific recommendations issued in the context of the European Semester, it assesses whether the growth of net expenditure is within the ceilings set out in the Member States' medium-term plans, provided such a plan is available and considered to be compliant with the new framework.

What are the main findings of the Commission's assessment of the draft budgetary plans for 2025?

Overall, eight euro area Member States (out of 17) are considered to be “in line” with the fiscal country-specific recommendations. For the other Member States, there will be a need for vigilance and appropriate action to ensure that their budgets are in line with their fiscal country-specific recommendations and the new EU fiscal framework.

Greece, Cyprus, Latvia, Slovenia, Slovakia, Italy, Croatia and France are assessed to be in line with the fiscal country-specific recommendations, as their net expenditure is projected to be within the ceilings.

Estonia, Germany, Finland and Ireland are assessed to be not fully in line with the fiscal country-specific recommendation as their annual (Finland, Ireland) and/or cumulative (Estonia, Germany, Ireland) net expenditure is projected to be above the respective ceilings.

Luxembourg, Malta, and Portugal are assessed to be not fully in line with the recommendations: while their net expenditure is projected within the ceilings, they do not phase out the energy emergency support measures by winter 2024-2025, as laid out in the fiscal country-specific recommendations addressed to them.

The Netherlands is assessed to be not in line with the recommendation, as the net expenditure (both in annual and in cumulative terms) is projected to be above the ceilings.

Lithuania is assessed to risk being not in line with the fiscal country-specific recommendation, as the net expenditure (both in annual and in cumulative terms) is projected to exceed the rates that the Commission would consider as an appropriate first step in the implementation of the new economic governance framework.

What are the next steps following the presentation of the Commission's Opinions on the 2025 draft budgetary plans?

The Eurogroup will discuss the Commission's Opinions and is expected to issue a statement on the draft budgetary plans for 2025.

Governments and national Parliaments should take due note of the Commission's Opinions and the statement of the Eurogroup and, if needed, take further action to ensure that their budgets are in line with their country-specific recommendations and the new EU fiscal framework.

Euro Area Fiscal Stance

What is the Commission's assessment of the euro area fiscal stance?

The euro area fiscal stance is projected to be slightly contractionary in 2025 (by just above ¼% of GDP). The euro area fiscal stance has already been slightly contractionary in 2024, close to ½% of GDP. This contractionary stance follows a sizeable expansion (around 3½% of GDP) in 2020-2023 also linked to the decisive policy response to the COVID-19 pandemic and the energy crisis which resulted from Russia's war of aggression against Ukraine.

In terms of composition, in 2025 net current expenditure is slightly contractionary due to policies aimed at reducing deficits in some Member States (0.4% of GDP), which are largely consistent with the new EU fiscal framework and which the Commission considers appropriate. Importantly, some further expansion is projected in investment financed by national budgets and expenditure financed by Recovery and Resilience Facility (RRF) grants and other EU funds.

Fiscal stances are projected to be heterogeneous across euro area countries in 2025. The fiscal stance in 2025 is set to range from a contractionary stance of around 1½% of GDP in France to an expansionary stance of around 1¼% in Latvia. In terms of composition, net current expenditure financed by national budgets is expected to provide contractionary contributions in several countries, with particularly sizeable restraints (1% of GDP or more) in France, Slovakia, Finland and Estonia.

Importantly, nationally financed investment is expected to be preserved or to increase in the majority of countries, with particularly large expansions (½% of GDP or more) in Estonia and Finland. Expenditure financed by RRF grants and other EU funds is expected to provide expansionary contributions to the fiscal stance of more than ½% of GDP in Latvia, Slovakia, Greece and Croatia.

Medium-term fiscal-structural plans (‘medium-term plans')

What are medium-term plans?

Medium-term plans are the cornerstone of the new economic governance framework. Member States' plans include a multi-annual commitment setting out their fiscal objectives, priority reforms and investments, and measures to address any possible macroeconomic imbalances during a fiscal adjustment period.

The “adjustment period” refers to the timeframe within which, through a combination of fiscal adjustments, reforms and investments, a Member State's debt level is put on a realistic and sustainable downward path or kept at prudent levels and the deficit is brought down to or remains below the Treaty reference value of 3% of GDP. The normal adjustment period is four years, but Member States can opt for an extended and more gradual adjustment of up to seven years if they commit to relevant reforms and investments.

The plans are valid for a period of four or five years, depending on the length of the national legislature of the Member State and replace both the Stability/Convergence Programmes and the National Reform Programmes of the old framework.

The medium-term plans consist of three blocks:

• The first is the fiscal block which consists of a net expenditure path that has to comply with a number of requirements foreseen in Regulation (EU) 2024/1263. The net expenditure path covers a standard adjustment period of four years which can be extended by a maximum of three additional years (implying a more gradual fiscal adjustment) if underpinned by a specific set of reform and investment commitments by the Member State.
• Each plan must include a block consisting of reforms and investments which address structural socio-economic challenges in a Member State as laid out in the country-specific recommendations issued in the context of the European Semester, and reforms and investments that address the common priorities of the EU, such as securing the green and digital transitions, strengthening economic and social resilience, productivity and competitiveness, as well as bolstering Europe's security capacity.
• For Member States with an extended adjustment period (i.e. Finland, France, Italy, Spain and Romania), an additional set of reforms and investment commitments constitutes a further block of the plan. In addition to the requirements for reforms and investments in the second block, these measures must improve the growth and resilience potential of a country, as well as support fiscal sustainability.

How did the Commission assess the medium-term plans?

The Commission assessed whether Member States' plans meet the requirements set out in the Regulation.

The Commission first assessed whether the plans contained all the necessary information.

Secondly, the Commission assessed whether, based on the plan's own macroeconomic assumptions, the net expenditure path of the plan would ensure that public debt remains below 60% of GDP until 10 years after the adjustment period, or whether the debt is put under a plausibly downward trajectory by the end of the adjustment period. The Commission also checked if the plan ensured that the net expenditure path brings and maintains the deficit below 3% of GDP over the medium term.

In addition, the Commission assessed whether the net expenditure path complied with the different safeguards including the deficit benchmark, the deficit resilience safeguard and the debt sustainability safeguard, and whether the time profile of the adjustment was in line with the requirements of the regulation.

Finally, the Commission carefully assessed the underlying macroeconomic and fiscal assumptions of the plans.

In case the Member State submitted a plan with an extension of the fiscal adjustment period, the Commission also assessed if the set of reform of investment commitments underpinning this extension met the criteria for an extension. In particular, it was assessed if they improved the growth and resilience potential of the economy, supported fiscal sustainability and foster common EU priorities such as securing the green and digital transitions, strengthening economic and social resilience, productivity and competitiveness, as well as bolstering Europe's security capacity.

What are the main findings of the Commission's assessment of the medium-term plans?

Medium-term plans are the cornerstone of the new economic governance framework. Integrating fiscal, reform and investment objectives into a single medium-term plan has helped create a coherent and streamlined process. These reforms and investment should also be aligned with those of the RRF, ensuring a consistent national and EU policy approach.

The plans reflect Member States' ownership, providing them with greater leeway in setting their fiscal adjustment paths and reform and investment commitments.

The Autumn Package assesses 21 out of the 22 medium-term plans submitted by Member States (Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Ireland, Greece, Italy, Latvia, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden).

The Commission considers that the plans of 20 Member States meet the requirements of the Regulation and set out a credible fiscal path to ensure fiscal sustainability over the medium term.

For these Member States, the Commission proposes that the Council recommend the net expenditure paths included by Member States in their plans. In the case of the Netherlands, the Commission proposes to recommend the net expenditure path consistent with the technical information it transmitted in June.

The Commission is still assessing the medium-term plan of Hungary, submitted on 4 November, within the 6-week deadline in line with the Regulation.

Five Member States (Finland, France, Italy, Spain, and Romania) have made use of the possibility to extend their fiscal adjustment path to seven years, and therefore benefit from a more gradual fiscal adjustment, by committing to implement a set of relevant investment and reform measures. In all five cases, the Commission assessed that the measures included in their plans met the criteria to justify an extension.

Overall, according to the Commission's assessment, the net expenditure growth paths set out by Member States in their plans will ensure that debt is on a plausibly downward path by the end of the adjustment period or stays at prudent levels below 60% of GDP.

It also finds that Member States will maintain or increase investment over the lifetime of the plans. Public investment is expected to increase in 2025 in almost all Member States, with a significant contribution by the Recovery and Resilience Facility and other EU funds in several Member States.

Why has the Commission not received some medium-term plans? When will the remaining plans be submitted?

At the time of presenting the Autumn Package, the Commission has not yet received five medium-term plans (Austria, Belgium, Bulgaria, Germany and Lithuania). The Commission has agreed on a later submission with the Member States concerned, which is foreseen as a possibility in the Regulation.

The reasons for postponement are linked to the political and electoral cycle, to ensure both national ownership and high-quality plans.

For Bulgaria, Belgium, Austria, and Lithuania, the delays were requested due to pending government formation after recent elections.

The submission of Germany's plan was delayed due to the upcoming elections.

How will the medium-term plans address the EU's large reform and investment needs?

The new economic governance framework ensures a much closer integration between the fiscal strategy of Member States and the reforms and investment needed to support growth in the long-term.

As part of their medium-term plans, Member States must explain how they will ensure the delivery of reforms and investment responding to the main socio-economic country-specific challenges identified in the context of the European Semester and to the common priorities of the EU. This means that the plans effectively integrate into one single document the fiscal and economic strategy of Member States.

Member States also have the possibility to extend the fiscal adjustment period to up to seven years if they commit to a set of reforms and investments, which must comply with common criteria. The measures should result in a credible improvement of growth and resilience, support fiscal sustainability and address the main challenges identified in the European Semester, in particular in the country-specific recommendations, and the common priorities of the EU.

In addition, Member States also have to maintain the level of public investment.

What specific examples of investments and reforms are contained in the medium-term plans?

Member States have included in their plans a broad reform and investments agenda covering the policy areas related to common priorities of the EU and, the challenges identified in the context of the European Semester, in particular in the country-specific recommendations addressed to them by the Council.

These include, for example:

• In Ireland, investments in energy grid interconnectors with France that will contribute to a more secure and a more sustainable electricity supply and reduced electricity prices.
• In Estonia, the implementation of the Renewable Electricity 100 reform, which calls for a transition to renewable electricity consumption by 2030.
• In Denmark, measures on education, training and long-life learning to improve education outcomes.
• In Italy, improvements to the efficiency of the tax system to improve revenue collection.
• In France, reforms to reduce the burden of administrative procedures for businesses.

What are the next steps following the presentation of the Commission's assessment of the medium-term plans?

As a next step, the Commission will submit its assessment of the medium-term plans to the Council.

The Council is expected to assess the plans on 21 January 2025 based on the Commission's Recommendation for a Council Recommendation.

Excessive Deficit Procedure

How did the Commission set the recommended adjustment path to correct the excessive deficits?

The Excessive Deficit Procedure follows a step-by-step procedure that is outlined in detail in Article 126 of the Treaty on the Functioning of the EU (TFEU).

On the basis of proposals from the Commission, the Council on 26 July 2024 established the existence of excessive deficits in seven Member States, and that no effective action has been taken by Romania in response to an existing excessive deficit procedure.

Today, the Commission proposed to the Council recommendations to concerned Member States to put an end to the excessive deficit situation, including:

• a deadline of maximum six months to take effective action;
• a deadline for the correction of the excessive deficit; and
• a corrective path that ensures that the deficit is brought and maintained below the reference value within that deadline.

The Commission recommendations under Article 126(7) TFEU on the correction of the excessive deficits are adopted at the same time as the Commission recommendations on the medium-term plans to ensure consistency. The corrective adjustment paths in the Commission recommendations are in line with the net expenditure paths included in the recommendations on the medium-term plans.

Where a Member State has not submitted a medium-term plan or where the medium-term plan is not yet assessed positively, the corrective path in the excessive deficit procedure recommendation is based on the Commission's four-year reference trajectory, updated based on the most recent data.

How did the Commission set the deadline for the correction of excessive deficits?

The deadline for the correction of the excessive deficit, i.e. the year in which the deficit is projected to go below 3% of GDP based on the corrective expenditure path, is derived from the net expenditure paths and the assumptions in line with the Commission medium-term debt projection framework and the Commission Autumn 2024 Forecast. In the case of France, the Commission has also taken into account that the deficit is expected to fall below 3% of GDP already in 2029, based on the medium-term plan's assumptions.

How do the new rules take into account spending for defence and other EU priorities?

The Commission proposes to the Council that the corrective path under the excessive deficit procedure is based on the path of the Member States' medium-term plans, provided that these paths fulfil the requirements of the preventive and corrective arm.

This ensures ownership by Member States and that spending for defence and other common EU priorities is properly taken into account. For example, a more gradual adjustment path is allowed in case a Member State commits to a set of specific reform and investments that address the EU's common priorities, including defence capabilities. Moreover, an increase in defence investment is considered as a relevant factor that is taken into account in the different steps of the excessive deficit procedure.

What are the main conclusions of the Article 126(3) report?

The Commission has assessed whether an excessive deficit exists in Austria and Finland. In the context of the autumn excessive deficit procedure notification, Austria and Finland reported a planned deficit for 2024 above the 3% of GDP reference value. For both Austria and Finland, the deficit in excess in 2024 has been assessed as not close to the reference value.

Based on Commission Autumn 2024 Forecast, the government deficit in Austria is projected to exceed 3% of GDP over the forecast horizon, until 2026, under a no policy change assumption as the Commission forecast does not consider a budget for 2025 since it has been delayed by the Austrian electoral cycle. This is not the case for Finland (where the government deficit is not likely to exceed the reference value in 2025 and 2026). As a result, the excessive deficit has been assessed as not temporary for Austria and as temporary for Finland.

In addition, the planned deficits in excess over the reference value for both Austria and Finland have been impacted by unfavourable macroeconomic conditions, and therefore they have been assessed as exceptional. For both Member States, the analysis carried out in the Article 126(3) report suggests that the deficit criterion is not fulfilled, before the consideration of the relevant factors. However, since the double condition necessary for relevant factors to be taken into account by the Council and the Commission in the steps leading to the decision on the existence of an excessive deficit is not met in both Member States, relevant factors cannot be taken into account.

In light of its assessment in the Article 126(3) report, and after considering the opinion of the Economic and Financial Committee as established under Article 126(4) TFEU, the Commission will consider to propose to the Council to establish that an excessive deficit exists in Austria. In the exchange leading to today's report, the Austrian authorities recalled that negotiations to form a government are ongoing and expressed their intention to take the necessary action to bring the deficit below 3 % in 2025. This would take the form of a package of corrective measures, in time for the ECOFIN meeting of January 2025. The Commission stands ready to assess such a package as soon as related measures are formally agreed by the government and sufficiently detailed.

In contrast, according to the Commission Autumn 2024 Forecast, Finland's deficit is projected to no longer exceed the reference value from 2025, and that without additional measures. The Commission is thus of the view that initiating an excessive deficit procedure for Finland would not serve a useful purpose at this stage.

The Commission has also reviewed the budgetary situation of Member States which were concerned by the Article 126(3) TFEU report in spring 2024 but for whom the Commission did not recommend the opening of excessive deficit procedures. These comprise Czechia, Estonia, Spain and Slovenia.

Taking into account the autumn excessive deficit procedure notification and the Commission Autumn 2024 Forecast, no substantive changes in the budgetary situation of Czechia and Spain are observed compared to spring, while for Estonia and Slovenia the situation has in fact improved.

Overall, the conclusions of the Article 126(3) report in spring – that the excessive deficit procedure should not be opened for these countries – are still deemed as pertinent for all four Member States this autumn.

What are the main findings of the PPS reports?

The post-programme surveillance reports assess twice per year the economic, fiscal and financial situation of Member States that have benefited from financial assistance programmes (Ireland, Greece, Spain, Cyprus, and Portugal). The main objective of these reports is to assess the Member States' repayment capacity.

The reports are based on information gathered in the context of missions that involved European Commission staff in liaison with European Central Bank staff. European Stability Mechanism staff participated on aspects relating to its Early Warning System.

The reports on all five Member States conclude that they retain the capacity to repay their debt.