Policy guidance under the European Semester: Sustaining reforms and investments to secure the EU's long-term prosperity, competitiveness, fairness and resilience

The Commission is today providing guidance to Member States under the 2023 European Semester Spring Package to build a robust and future-proof economy that secures competitiveness and long-term prosperity for all in the face of a challenging geopolitical environment. This requires an integrated approach across all policy areas: promoting environmental sustainability, productivity, fairness, and macroeconomic stability.

The European Semester provides the policy coordination framework for that purpose, embedding the implementation of the Recovery and Resilience Facility (RRF) and cohesion policy programmes. The European Semester cycle also provides updated reporting on progress towards the delivery of the Sustainable Development Goals across Member States.

Country Specific Recommendations for Luxembourg

The European Commission recommends that Luxembourg take action in 2023 and 2024 to

1. Wind down the energy support measures in force by the end of 2023, using the related savings to reduce the government deficit. Should renewed energy price increases necessitate support measures, ensure that these are targeted at protecting vulnerable households and firms, fiscally affordable, and preserve incentives for energy savings.

Ensure prudent fiscal policy, in particular by limiting the nominal increase in nationally financed net primary expenditure in 2024 to not more than 4.8%.

Preserve nationally financed public investment and ensure the effective absorption of RRF grants and other EU funds, in particular to foster the green and digital transitions. For the period beyond 2024, continue to pursue a medium-term fiscal strategy of gradual and sustainable consolidation, combined with investments and reforms conducive to higher sustainable growth, to achieve a prudent medium-term fiscal position.

Reduce risks related to the housing market, in particular by reducing mortgage interest deductibility, and by taking measures to increase the supply of buildable land. Address the long-term sustainability of the pension system, in particular by limiting early retirement options and increasing the employment rate for older workers. Increase action to effectively tackle aggressive tax planning, in particular by ensuring sufficient taxation of outbound payments of interest and royalties to zero/low-tax jurisdictions.

2. Proceed with the steady implementation of its revised recovery and resilience plan and swiftly finalise the REPowerEU chapter with a view to rapidly starting its implementation. Proceed with the swift implementation of cohesion policy programmes, in close complementarity and synergy with the recovery and resilience plan.
3. Improve the performance of the school education system and promote equal opportunities for all students, notably by adapting teaching to the needs of disadvantaged students and those from various linguistic backgrounds.
4. Reduce reliance on fossil fuels by accelerating the deployment of renewables, electricity transmission capacity, easing permitting procedures and investing in energy efficiency in both the residential and non-residential sectors. Support municipalities in developing detailed local plans for deploying renewable energy, including wind power and photovoltaics, and for district heating and cooling systems. Further promote electrification of transport and invest in public transport networks and infrastructure. Step up policy efforts aimed at the provision and acquisition of the skills needed for the green transition.

Quotes

“The past three years have been very challenging for people and businesses across Europe. While energy prices have recently fallen, we still face many challenges - notably high inflation, which erodes people’s purchasing power and companies competitiveness. It is time to focus on prudent fiscal policies, make the best investments to support future growth, and keep the EU globally competitive. Today’s Semester recommendations set specific fiscal targets, while phasing out unfocused support and maintaining the momentum for key reforms and investments. This will be vital to secure the EU’s long-term prosperity and resilience. Our guidance also calls on countries to make full use of extra funding for energy-related needs thanks to REPowerEU.” Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People.

“The experience since the start of the pandemic has shown the value of a coordinated EU approach to our economic challenges - and this what today’s policy recommendations aim to achieve. Member States should pursue prudent fiscal policies that support growth through investment. They should prioritise the successful implementation of national Recovery and Resilience Plans, our most powerful tool to achieve lasting and shared prosperity. They should continue – and where needed, accelerate – the transition away from Russian fossil fuels, which is both an environmental and a geopolitical imperative. And they should safeguard and strengthen their social protection systems. This is the recipe for the sustained and sustainable growth Europeans need.” Paolo Gentiloni, Commissioner for Economy.

“We need to equip workers with the relevant skills to match labour market needs. This will enable smooth transitions into a greener and more digital economy, boost Europe’s competitiveness and support quality job creation. To achieve this, we need strong and targeted employment and social policies that work hand in hand with industrial, economic, and fiscal policies. Social aspects of the European Semester and the Recovery and Resilience Facility are key to improving working and living conditions in the EU.” Nicolas Schmit, Commissioner for Jobs and Social Rights.

Next steps

The Commission invites the Eurogroup and the Council to discuss the package and to endorse the guidance offered today. It looks forward to engaging in a constructive dialogue with the European Parliament on the contents of this package and each subsequent step in the European Semester cycle.

For more information

A detailed press release is available online in FR, EN and DE.

Questions and answers on the 2023 European Semester Spring Package

European Semester Spring package, including the Country Reports and Country Specific recommendations

European Green Deal Industrial Plan 

EU competitiveness beyond 2030: looking ahead at the occasion of the 30th anniversary of the Single Market

Proposals for new economic governance rules fit for the future

The REPowerEU plan

NextGenerationEU

Spring 2023 Economic Forecast

Sustainable development in the European Union – 2023 edition

Contacts: NUYTS Veerle (Veerle [dot] NUYTSec [dot] europa [dot] eu (Veerle[dot]NUYTS[at]ec[dot]europa[dot]eu)); BERARD Laura (laura [dot] berardec [dot] europa [dot] eu (laura[dot]berard[at]ec[dot]europa[dot]eu))