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Belgium : European Semester Autumn Package: Working for a stronger and more inclusive economic recovery.

Commission sets EU's economic and social priorities for the year ahead, confirms the need to move towards a more positive fiscal stance for the euro area, and completes assessment of euro area Member States' Draft Budgetary Plans.

The Commission today sets out its views on the EU's economic and social priorities for the year ahead, building on the guidance from President Juncker's 2016 State of the Union address and on the latest economic data from the Commission's Autumn 2016 Forecast. Today's package starts the 2017 cycle of economic governance, the so-called European Semester.

President Jean-Claude Juncker said: "The 2017 European Semester we start today will be decisive for Europe to manage its economic and social turn-around. I believe we can do it. This is why today the Commission is recommending a positive fiscal stance to support the recovery and the monetary policy of the European Central Bank, which should not bear the burden alone. Every Member State should play its part: those that can afford it need to invest more, while those which have less fiscal space should pursue reforms and growth-friendly fiscal consolidation."

Europe is experiencing a fragile but relatively resilient and job-intensive recovery. Its GDP is now higher than before the crisis. Unemployment is decreasing and investment is growing again. However, there is no room for complacency. Some of the tailwinds that have supported the recovery so far are fading. The legacies of the crisis, notably the social impact, high levels of public and private debt, and the share of non-performing loans, are still far-reaching.

The Commission therefore calls on Member States to redouble their efforts along the principles of the "virtuous triangle" of boosting investment, pursuing structural reforms and ensuring responsible fiscal policies, and in doing so, to put the focus on social fairness and delivering more inclusive growth. The Commission recently presented its priorities for action at EU level in its Work Programme for 2017, including the strengthening of the Investment Plan for Europe. Today's package provides further guidance for the economic and social policies of the Member States.

Looking at the euro area in particular, the Commission is calling for a significantly more positive fiscal stance for the currency area as a whole to overcome the risk of "low growth, low inflation", and to support the monetary policy of the European Central Bank.

The policy guidance in the Annual Growth Survey is accompanied by a Communication on the euro area's fiscal stance, a recommendation on the economic policy of the euro area, as well as a thorough analysis of economic, labour market and social conditions. The Commission is also issuing its Opinions on the Draft Budgetary Plans of euro area Member States for 2017.

A positive fiscal stance for the euro area

In the letter of intent accompanying his 2016 State of the Union address, President Juncker announced the Commission's intention to promote "a positive fiscal stance for the euro area, in support of the monetary policy of the European Central Bank". The discussion on the appropriate fiscal stance for the euro area is a key aspect of the Commission's efforts to complete Europe's Economic and Monetary Union, as part of Stage 1 of the follow-up to the Five Presidents' Report of June 2015 ("deepening by doing").

Both monetary and fiscal policies play a key role in macroeconomic stabilisation. In the euro area, monetary policy has been conceived and designed as a single instrument. By contrast, in the absence of a centralised budget or stabilisation function, euro area fiscal policy is the result of the aggregation of 19 individual fiscal policies. In fact, on the basis of the latest data, and without taking account of the flexibility foreseen within the rules, a full delivery of the fiscal requirements contained in the Country-Specific Recommendations (CSRs) adopted by the Council in July 2016 would imply, on aggregate, a moderately restrictive fiscal stance for the euro area as a whole in 2017 and 2018. Given the need to sustain the recovery and in view of the broader uncertainty at this point in time, such a fiscal stance would not seem appropriate.

In its Communication, the Commission stresses the need for a more positive fiscal stance and that there is now a window of opportunity to achieve it. A positive fiscal stance refers both to the supportive, i.e. expansionary, direction that fiscal policy should take overall, and to the composition of the fiscal adjustment, in terms of the distribution of efforts across countries and of the types of expenditure and/or taxes behind it.

To deliver such a fiscal stance, the euro area must adopt a more collective approach which takes account of the differences in situations across countries: (i) for Member States which are over-achieving their fiscal objectives, use their fiscal space to support domestic demand and quality investments, including cross-border ones, as part of the Investment Plan for Europe; (ii) for Member States that need further fiscal adjustments under the preventive arm of the Pact, make sure to be broadly compliant with the requirements of the Stability and Growth Pact; (iii) for Member States under the corrective arm, ensure a timely correction of their excessive deficits, including by providing fiscal buffers against unforeseen circumstances.

A recommendation on the economic policy of the euro area

In line with the Communication on the euro area fiscal stance, the Commission recommends a fiscal expansion of up to 0.5% of GDP in 2017 for the euro area as a whole. This should contribute to a balanced policy mix, to support reforms and to strengthen the recovery. The recommendation also highlights the need to pursue structural reforms and improve the quality of public finances.

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Publication:Mena Report
Date:Nov 18, 2016
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