Here's what the EC wants from member states*

It is evident that the Commission has not given up on pursuing the goals formulated in Europe 2020, despite the continent's repeated fall into recession.

The recommendations of the European Commission (EC) on the National Reform Programmes of the Member States have caused a wide resonance in the European public. Although they can hardly be described as surprising, their overall direction clearly reflects the problems facing the Union. In this material we will try to make a brief summary of the main guidelines and recommendations that the EC gives to the Member States, including Bulgaria, in the individual areas relevant to achieving the objectives of the Europe 2020 strategy. The breakdown of the main recommendations of the EC to the National Reform Programmes by areas and countries is given in Table 1 (Select the image to see the table in full size ).

Although the emphases presented in the EC's opinions do not provide a completely comprehensive picture of the situation in individual countries, it is sufficiently indicative to allow the identification of the most important areas, according to the EC, that deserve the attention of the member states.

Table 1: Key recommendations of the European Commission to the National Reform Programmes of the EU Member States*

Source: EC

*Note: The table is based on the European Commission's flagship recommendations to EU Member States. Only opinions indicating the need for reform in a given area are considered relevant. In this sense, recommendations such as: "continue to pursue sound budgetary policies towards achieving the medium-term budgetary objective" are not included in the table. The Commission's recommendations to Greece, Portugal, Ireland and Romania are reflected in the Memoranda of Understanding of the respective countries receiving financial support from the EU, and are therefore also not included in the table.

Problem areas

The leading problem areas are the labor market, public finances, tax systems, protection of vulnerable groups in society, education and pension systems. (See Chart 1)

Chart 1: Number of countries receiving recommendations in the respective area

Source: EC

In the overall review of the EC's recommendations on the National Reform Programmes of the member states, several key points stand out:

1. Improving the quality of tax systems is seen as a key tool for addressing the catastrophic state of public finances in many countries. What immediately strikes the eye in the EC recommendations is the repeatedly repeated proposal to shift the tax burden from taxes on labor to property and environmental taxes. These types of taxes are defined by the EC as being growth-friendly and encouraging innovation and job creation. According to the EC recommendations, however, this must be done in a way that does not reduce tax revenues in the budgets of the member states. However, the recommendations do not dare to address the real problems in a number of EU countries, namely the huge and inefficient states that are financed with a huge tax burden, which in turn suffocates the local economy. The recommendations for increasing environmental taxes at this stage are addressed mainly to the countries in Western Europe. In a number of countries such as Bulgaria, Greece and Italy, attention is currently being paid to the need to increase tax collection and improve the economy.
2. The EC's main recommendations for labour market reforms are aimed at synchronizing wage growth with labour productivity. In most cases, it is recommended that wage indexation be carried out in "cooperation with social partners". In some countries, such as Italy, the emphasis is on increasing labour market flexibility and labour mobility, and for this purpose the introduction of nationally recognised professional qualifications is recommended. It is striking, however, that not enough attention has been paid to liberalising the market by restricting collective bargaining systems, which are hampering the recovery of the economies of a number of countries, such as Spain. It is the latter side that is the best counterargument to the claim that the existence of collective bargaining agreements has softened the blow of the crisis on employment.
3. The problem of high public debt of the member states is highlighted as a leading one in the EC recommendations. Many of the problems in other areas are identified as a consequence of the high levels of public debt. In general, the EC recommendations are that the countries adhere to the commitments made to limit annual deficits to levels below 3%, which should guarantee them medium-term and long-term stability. Bulgaria, as expected, is one of the few countries that received a positive assessment for its fiscal policy.
4. The main recommendations in the area of pension systems are aimed at equalizing the retirement age of men and women, as well as raising the effective retirement age in line with increasing life expectancy. Accelerating pension reforms to keep older people in the workforce during the crisis could ease some of the pressure on member states' pension systems over the next few years. The main recommendation of the EC is to do this by revising the early retirement options available in countries such as Bulgaria and Poland. It is also interesting that the only countries that receive recommendations to tighten control over the granting of disability pensions are Bulgaria and Denmark.
5. The recommendations in the field of education are largely in line with the objectives set by the Europe 2020 strategy. Reducing the number of early school leavers and improving the quality of education for disadvantaged children are among the most common recommendations. Emphasis is also placed on intensifying cooperation with the private sector in order to improve the quality of training for young people in line with the requirements and needs of employers.
6. The EC's main competition concerns relate to barriers to entry in the telecommunications services market, as well as in the energy and transport sectors, which hinder competition. Interestingly, one of the few specific recommendations to Germany is to ensure competition in the construction sector.
7. In addition to the gradual capitalisation of distressed financial institutions and the restructuring of banks that have received state aid, the EC's recommendations focus mainly on the need to increase lending to small and medium-sized enterprises. The EC's recommendations to Cyprus explicitly mention the need to strengthen regulatory requirements for the effective recapitalisation of financial institutions in order to limit the vulnerability of the financial sector to external shocks.
8. The protection of vulnerable groups has also been identified as a top priority by the EC. In addition to people in disadvantaged situations, this group includes measures to reduce youth unemployment, as well as those to support the employment of women in the EU.

The overall assessment of the EC's recommendations to the member states is contradictory. The problem areas are clearly identified in the individual countries, but some of the proposed solutions to the existing problems create the impression that the EC continues to apply an overly universal approach to addressing them. It is evident that the Commission has not given up on pursuing the goals formulated in Europe 2020, despite the continent's repeated recession. A more up-to-date look at the realities in Europe, however, raises the question of how feasible and even expedient the strategy itself is at this stage.

* The article was written for the weekly newsletter of the Institute for Market Economics. The original publication is available here.

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