Explanatory Memorandum to COM(2024)605 - - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2024)605 - . |
|---|---|
| source | COM(2024)605 |
| date | 19-06-2024 |
COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Germany
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121 i and 148 i thereof,
Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the effective coordination of economic policies and on multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular Article 3(3) thereof,
Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances2, and in particular Article 6(1) thereof,
Having regard to the recommendation of the European Commission,
Having regard to the resolutions of the European Parliament,
Having regard to the conclusions of the European Council,
Having regard to the opinion of the Employment Committee,
Having regard to the opinion of the Economic and Financial Committee,
Having regard to the opinion of the Social Protection Committee,
Having regard to the opinion of the Economic Policy Committee,
Regulation (EU) 2021/241 of the European Parliament and of the Council3 , which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support to the Member States for the implementation of reforms and investment, entailing a fiscal impulse financed by the EU. In line with the European Semester priorities it helps achieve the economic and social recovery and implement sustainable reforms and investment, in particular to promote the green and digital transitions and make the Member States’ economies more resilient. It also helps strengthen public finances and boost growth and job creation in the medium and long term, improve territorial cohesion within the EU and support the continued implementation of the European Pillar of Social Rights.
The REPowerEU Regulation4, adopted on 27 February 2023, aims to phase out the EU’s dependency on Russian fossil fuel imports. This would help achieve energy security and diversify the EU’s energy supply, while increasing the uptake of renewables, energy storage capacities and energy efficiency.
On 16 March 2023, the Commission issued a Communication on the ‘Long-term competitiveness of the EU: looking beyond 2030’5, in order to inform policy decisions and create the framework conditions for increasing growth. The Communication frames competitiveness along nine mutually reinforcing drivers. Among these drivers, access to private capital, research and innovation, education and skills, and the single market emerge as paramount policy priorities for reform and investment to address current productivity challenges as well as to build up the long-term competitiveness of the EU and its Member States. On 14 February 2024, the Commission followed this Communication with the Annual Single Market and Competitiveness Report6. The report details the competitive strengths and challenges of Europe's Single Market, tracking yearly developments according to the nine competitiveness drivers identified.
On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth Survey7, marking the start of the 2024 cycle of the European Semester for economic policy coordination. The European Council endorsed the priorities of the survey around the four dimensions of competitive sustainability on 22 March 2024. On 21 November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the 2024 Alert Mechanism Report, in which it identified Germany as one of the Member States that may be affected or may be at risk of being affected by imbalances, and for which an in-depth review would be needed. On the same date, the Commission adopted an opinion on the 2024 draft budgetary plan of Germany. The Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which the Council adopted on 12 April 2024, as well as the proposal for the 2024 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which the Council adopted on 11 March 2024.
On 30 April 2024, the EU’s new economic governance framework came into force. The framework includes the new Regulation of the European Parliament and of the Council (EU) 2024/1263 on the effective coordination of economic policies and multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97. It also includes the amended Regulation (EC) No 1467/97 on the implementation of the excessive deficit procedure and the amended Directive 2011/85/EU on the budgetary frameworks of Member States8. The objectives of the new framework are public debt sustainability and sustainable and inclusive growth through gradual fiscal consolidation as well as reforms and investments. It promotes national ownership and has a greater medium-term focus, combined with more effective and coherent enforcement. Each Member State should submit to the Council and to the Commission a national medium-term fiscal-structural plan. National medium-term fiscal-structural plans contain the fiscal, reform and investment commitments of a Member State, covering a planning horizon of 4 years or 5 years depending on the regular length of the national legislature. The net expenditure9 path in the national medium-term fiscal-structural plans should comply with the requirements of Regulation (EU) 2024/1263, including the requirements to put or keep general government debt on a plausibly downward path by the end of the adjustment period at the latest, or for it to remain at prudent levels below 60% of GDP, and to bring and/or maintain the government deficit below the 3% of GDP reference value over the medium term. Where a Member State commits to a relevant set of reforms and investments in accordance with the criteria set out in Regulation (EU) 2024/1263, the adjustment period may be extended by 3 years at most. For the purpose of supporting the preparation of those plans, on [21 June] 2024, the Commission is set to provide Member States with guidance on the content of the plans and the subsequent annual progress reports that they will need to submit and, in accordance with Article 5 of Regulation (EU) 2024/1263, will transmit to them technical guidance on the fiscal adjustments (reference trajectories and technical information where applicable). Member States should submit their medium-term fiscal-structural plans by 20 September 2024, unless the Member State and the Commission agree to extend the deadline by a reasonable period of time. Member States should ensure the involvement of their national parliaments, and the consultation of independent fiscal institutions, of social partners and other national stakeholders, as appropriate.
In 2024, the European Semester for economic policy coordination continues to evolve in line with the implementation of the Recovery and Resilience Facility. The full implementation of the recovery and resilience plans remains essential for delivering the policy priorities under the European Semester, as the plans help effectively address all or a significant subset of challenges identified in the relevant country-specific recommendations issued in recent years. The 2019, 2020, 2022 and 2023 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241.
On 28 April 2021, Germany submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 2021, the Council adopted its Decision on the approval of the assessment of the recovery and resilience plan for Germany10, which was amended on 8 December 2023 following Article 18 i of Regulation (EU) 2021/241 to update the maximum financial contribution for non-repayable financial support)11. The release of instalments is conditional on a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Germany has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed.
On 17 April 2024, Germany submitted its 2024 National Reform Programme and, on 24 April 2024, its 2024 Stability Programme, in line with Article 4(1) of Regulation (EC) No 1466/97. In accordance with Article 27 of Regulation (EU) 2021/241, the 2024 National Reform Programme also reflects Germany’s biannual reporting on the progress made in achieving its recovery and resilience plan.
The Commission published the 2024 country report for Germany12 on 19 June 2024. It assessed Germany’s progress in addressing the relevant country-specific recommendations adopted by the Council between 2019 and 2023 and took stock of Germany’s implementation of the recovery and resilience plan. Based on this analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges. It also assessed Germany’s progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals.
The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for Germany. The main findings of the Commission’s staff assessment of macroeconomic vulnerabilities for Germany for the purposes of that Regulation were published in April 202413. On 19 June 2024, the Commission concluded that Germany is experiencing macroeconomic imbalances. In particular, Germany faces vulnerabilities related to the large current account surplus which remain relevant, despite some reduction over the years, as the underlying issue of weak domestic demand and subdued investment, which has cross-border relevance, persists while the policy response has been limited. With lower energy prices, weak domestic demand and sluggish world trade, the current account surplus bounced back to 5.9% of GDP in 2023 from 4.2% of GDP in 2022. It is forecast to edge up somewhat more this year and next while remaining well below its pre-pandemic levels. Given the size of the German economy and its trade integration in the euro area, this has negative spillovers on the rest of the area. Falling house prices have considerably reduced the extent of the house prices overvaluation, with a limited impact on the financial system so far, but commercial real estate continues to require monitoring. Declining housing investment may lead to the re-emergence of price pressures and subsequent risks of overvaluation in the near future. Going forward, a mild deterioration of cost competitiveness is expected, and households are beginning to regain some purchasing power as wages are forecast to grow in real terms. The recovery of private investment is taking time and fiscal consolidation is expected to weigh on domestic demand, and potentially strain public investment. The overall underlying vulnerabilities in terms of a significant savings-investment gap have not changed fundamentally: investment needs have been increasing over the years, mainly linked to public investment at regional level and corporate investment in general, which would support economic growth in the future. Whereas the government has taken some action to support investment, and Germany’s recovery and resilience plan includes important measures to promote investment, the size of the policy response has not so far led to substantial progress nor been sufficient to meet the overall challenge of higher private and public investment.
Based on data validated by Eurostat14, Germany’s general government deficit remained unchanged at 2.5% of GDP in 2023 compared to 2022, while the general government debt fell from 66.1% of GDP at the end of 2022 to 63.6% at the end of 2023.
On 12 July 2022, the Council recommended15 that Germany take action to ensure in 2023 that the growth of nationally financed primary current expenditure is in line with an overall neutral policy stance16, taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Germany was recommended to stand ready to adjust current spending to the evolving situation. Germany was also recommended to expand public investment for the green and digital transitions, and for energy security taking into account the REPowerEU initiative, including by making use of the Recovery and Resilience Facility and other Union funds. In 2023, according to the Commission estimates, the fiscal stance17 was contractionary, by 0.3% of GDP. The growth in nationally financed primary current expenditure (net of discretionary revenue measures) in 2023 provided a contractionary contribution to the fiscal stance of 0.5% of GDP and was in line with the Council recommendation. Expenditure financed by Recovery and Resilience Facility grants and other EU funds amounted to 0.2% of GDP in 2023. Nationally financed investment amounted to 2.6% of GDP in 2023, with an annual increase of 0.1 percentage points from 2022. Germany financed additional investment through the Recovery and Resilience Facility and other EU funds. Germany financed public investment for the green and digital transitions, and for energy security, such as energetic renovation of buildings, improvement of the charging infrastructure for electric cars and equipping schools for the digital age, which are partly funded by the Recovery and Resilience Facility and other EU funds.
The key projections in the 2024 Stability Programme can be summarised as follows. The macroeconomic scenario underpinning the budgetary projections foresees real GDP to grow by 0.2% in 2024 and 1.0% in 2025. The general government deficit is expected to decrease to 1¾% of GDP in 2024 and 1% of GDP in 2025, while the general government debt-to-GDP ratio is set to increase to 64% by the end of 2024 and, subsequently, decrease to 63¼% by the end of 2025. After 2025, the general government deficit is projected to increase to 1¼% of GDP in 2026 and 1½% in 2027 before decreasing to 1% in 2028. Therefore, the general government balance is planned to remain below the 3% of GDP deficit reference value over the programme horizon. In turn, after 2025, the general government debt-to-GDP ratio is projected to decrease gradually to 63¼% in 2026, 63% in 2027, and 62% in 2028.
The Commission Spring 2024 Forecast projects real GDP to grow by 0.1% in 2024 and 1.0% in 2025, and HICP inflation to stand at 2.4% in 2024 and 2.0% in 2025.
The Commission Spring 2024 Forecast projects a government deficit of 1.6% of GDP in 2024, while the general government debt-to-GDP ratio is set to decrease to 62.9% by the end of 2024. The decrease of the deficit in 2024 mainly reflects the phase-out of energy-related emergency support measures with a similar impact on the debt-to-GDP ratio. Based on the Commission’s estimates, the fiscal stance is projected to be contractionary by 0.8% of GDP in 2024.
Expenditure amounting to 0.1% of GDP is expected to be financed by non-repayable support (“grants”) from the Recovery and Resilience Facility in 2024, the same amount as in 2023, according to the Commission Spring 2024 Forecast. Expenditure financed by Recovery and Resilience Facility grants will enable high-quality investment and productivity-enhancing reforms without a direct impact on the general government balance and debt of Germany.
(17) On 14 July 2023, the Council recommended18 that Germany ensure a prudent fiscal policy, in particular by limiting the nominal increase in net nationally financed primary expenditure19 in 2024 to not more than 2.5%. When executing their 2023 budgets and preparing their Draft Budgetary Plans for 2024, Member States were invited to take into account that the Commission would propose to the Council the opening of the deficit-based excessive deficit procedures based on the outturn data for 2023. According to the Commission Spring 2024 Forecast, Germany’s net nationally financed primary expenditure is projected to increase by 2.6% in 2024, which is above the recommended maximum growth rate. However, the projected growth rate of net expenditure in 2024 included in the Commission forecast is impacted by a reclassification of public transport entities into the general government sector in the course of 202320, which created a break in the time series. Without the impact of this reclassification, net nationally financed primary expenditure would be projected to increase by 2.4% in 2024, which is below the recommended maximum growth rate. This is in line with what was recommended by the Council.
(18) Moreover, the Council recommended that Germany take action to wind down the emergency energy support measures in force, using the related savings to reduce the government deficit, as soon as possible in 2023 and 2024. The Council further specified that, should renewed energy price increases necessitate new or continued support measures, Germany should ensure that these were targeted at protecting vulnerable households and firms, fiscally affordable, and preserve incentives for energy savings. According to the Commission Spring 2024 Forecast, the net budgetary cost21 of emergency energy support measures is estimated at 1.2% of GDP in 2023 and projected at 0.1% in 2024, and 0.0% in 2025. In particular, the reduced value added tax rate on gas is assumed to remain in force in 2024, albeit with a minor impact. If the related savings were used to reduce the government deficit, as recommended by the Council, these projections would imply a fiscal adjustment of 1.1% of GDP in 2024, whereas net nationally financed primary expenditure22 provides a contractionary contribution to the fiscal stance of 0.8% of GDP in that year. The emergency energy support measures are projected to be wound down as soon as possible in 2023 and 2024. This is in line with what was recommended by the Council. However, the related savings are not projected to be fully used to reduce the government deficit. This risks being not in line with the Council recommendation.
In addition, the Council also recommended that Germany preserve nationally financed public investment and ensure the effective absorption of Recovery and Resilience Facility grants and other EU funds, in particular to foster the green and digital transitions. According to the Commission Spring 2024 Forecast, nationally financed public investment is projected to increase to 2.7% of GDP in 2024, from 2.6% of GDP in 2023. This is in line with what was recommended by the Council. In turn, public expenditure financed from revenues from EU funds, including Recovery and Resilience Facility grants, is expected to remain stable at 0.2% of GDP in 2024.
Based on policy measures known at the cut-off date of the forecast and on a no-policy-change assumption, the Commission Spring 2024 Forecast projects a government deficit of 1.2% of GDP in 2025. The general government debt-to-GDP ratio is set to decrease to 62.2% by the end of 2025. The decrease of the deficit and of the debt-to-GDP ratio in 2025 mainly reflect the expected rebound in GDP growth.
(21) In spite of a slight increase of public investment as a percentage of GDP in recent years, public investment has not kept pace with the investment needs in infrastructure, education, training, and the green and digital transitions. Federal level investment has fallen below depreciation levels in the past year, while net investment at the municipal level has been negative for the last two decades, leading to an overall decline in the capital stock. Obstacles to investment persist. Private investment in 2023 was still below pre-pandemic levels. In particular, the administrative burden for the roll-out of private investments remains high, specifically due to requirements for extensive documentation and licences as well as a lack of digitalisation. Demanding regulatory standards, regulatory differences across regions and lengthy permitting procedures hinder the expansion of production and innovation capacities, especially in the energy and construction sectors. Investment in residential buildings has fallen for the last three years, despite housing shortages. Alternative forms of financing, particularly for scale-ups, are limited. Business enterprise spending on research and development by small and medium-sized enterprises (SMEs) remains low and the diffusion of technology is limited.
Ageing is reducing the working age population, putting upward pressure on the old-age dependency ratio. As a result, overall pension expenditure is expected to increase. This creates a significant financing need. Over the years, an increasing portion of pension expenditures have been financed through federal subsidies. Since 2020, this constituted over EUR 100 billion yearly, approximately 23% of the total federal expenditure. Under unchanged policies, this is expected to increase further, putting a strain on the scope for productive spending. Company pensions as well as the capital-based private pension schemes have remained underused. Despite efforts to increase the use of company pensions (second pillar), coverage remains at about 54%. The planned building up of ‘generation capital’, adding a capital-based element in the statutory pension system, will be financed through government debt and therefore offers limited potential for improving pension sustainability. While the employment rate of workers aged 55-64 is among the highest in the EU, the increase in the effective retirement age has slowed somewhat in recent years, and employment in the 65-and-over age group lags behind those Member States with the highest employment rates. This is also due to early retirement options, adding further pressure on the sustainability of the pension system.
An optimal tax mix is key for more inclusive and sustainable growth as well as stronger competitiveness. Workers in Germany face the second highest tax wedge in the EU. High taxes in conjunction with benefit rules reduce incentives to increase the number of hours worked, especially for low-wage and second earners, who are often women, as also indicated by the very high part-time share of employed women. This weighs on labour supply and aggravates existing labour shortages. Furthermore, Germany’s share of environmental taxes is below the EU average and decreasing. In contrast, Germany has one of the highest corporate income tax rates, including the local trade tax (Gewerbesteuer) in the EU. Their combination forms a complex and opaque tax system. Recent initiatives to review depreciation rules and enhancements of R&D tax credits are cost-effective ways of expanding investment incentives. At the same time, there is potential for simplifying the corporate taxation system by reducing the scope for exemptions.
In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation (EU) 2021/241, the German recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. These are expected to help effectively address all or a significant subset of challenges identified in the relevant country-specific recommendations. Within this tight timeframe, proceeding swiftly with the effective implementation of the plan, including the REPowerEU chapter once adopted, is essential to boost Germany’s long-term competitiveness through the green and digital transition, while ensuring social fairness. To deliver on the commitments of the plan by August 2026, it is essential for Germany to significantly accelerate the implementation of reforms and investments, including by allocating sufficient resources to its management. The rapid inclusion of a REPowerEU chapter in the recovery and resilience plan will allow additional reforms and investments to be financed in support of Germany’s and EU strategic objectives in the field of energy and the green transition. The systematic involvement of local and regional authorities, social partners, civil society and other relevant stakeholders remains essential to ensure broad ownership for the successful implementation of the recovery and resilience plan.
As part of the mid-term review of the cohesion policy funds, in accordance with Article 18 of Regulation (EU) 2021/1060, Germany is required to review each programme by March 2025, taking into account, among other things, the challenges identified in the 2024 country-specific recommendations, as well as its national energy and climate plan. This review forms the basis for the definitive allocation of the EU funding included in each programme. Germany has made progress in implementing cohesion policy and the European Pillar of Social Rights, but challenges remain. Significant regional disparities in employment and labour productivity persist, although the less developed regions have gradually been catching up as regards labour productivity. Accelerating the implementation of cohesion policy programmes is crucial and the priorities agreed in the programmes remain relevant. As part of the objective of enhancing administrative capacity, it is important to allocate sufficient resources to the implementation of the cohesion policy programmes, and to promote the modernisation and digitalisation of the public authorities in charge of their implementation. Increasing research, development and innovation in all regions, especially eastern regions, as well as supporting education and training to address the challenges posed by the green and digital transitions are key to further narrowing disparities in regional competitiveness and employment. This also requires the implementation of cohesion policy for the green and digital transition to continue in regions with high-performing sectors. It is also necessary to continue green investments in energy efficiency and renewable energies, climate change adaptation and carbon footprint. Business development and support for businesses, particularly SMEs, remain pertinent. Quality and inclusiveness of education, training and lifelong learning, particularly for disadvantaged groups, are priorities, as are active inclusion and improving employability. Germany could also make use of the Strategic Technologies for Europe Platform initiative23 to support the development or manufacturing of critical technologies in digital technologies, clean and resource efficient technologies, and biotechnologies, as well as to address shortages of labour and skills in these sectors.
Beyond the economic and social challenges addressed by the recovery and resilience plan and other EU funds, Germany faces several additional challenges related to addressing the high shortage of skilled workers, digitalisation and the green transition. Further investments in the twin transition would also help narrow the investment-savings gap.
Shortages of skilled labour hamper growth, investment and the twin transition. Approximately half of companies in Germany struggle to fill vacancies, even in the long term. There is a risk that skills shortages could be further exacerbated due to deteriorating education outcomes, especially for disadvantaged groups, a significant number of early school leavers and weak basic digital skills. According to the OECD Programme for International Student Assessment (PISA), the share of underachievers almost doubled over the last decade: around 3 out of 10 young students in Germany lack a minimum level of proficiency in mathematics, and 1 in 4 in reading and science. The influence of socio-economic and migrant backgrounds on education outcomes increased further. Germany also has one of the highest shares of early school leavers in the EU and has particularly elevated numbers for foreign-born students. The new 10-year federal programme ‘Startchancen’ targeting mainly disadvantaged students is a step in the right direction, but it only covers up to 10% of German schools. Proficiency in the German language is key for effective learning and inclusion, which underlines the importance of intensified German language support, particularly for students where languages other than German are spoken at home. With 52.2% in 2023, Germany is below the EU average of 55.6% of adults with at least basic digital skills, and especially young people are lagging behind. There is a need to improve provision of basic skills and upskilling of people with lower-level qualifications and people with a migrant background with low labour market attainment in order to address shortages of labour especially in the health and long-term care sector, construction, crafts and services. Skills outcomes could be improved through stepping up collaboration between employers and training institutions both within and across sectors, and further reliance on modular/short cycle qualifications. Further efforts to improve education outcomes, in particular for disadvantaged groups, and strengthening digital skills are key to addressing the high shortage of skilled workers.
While Germany has made efforts to improve the digitalisation of public services, implementation remains slow, particularly in rolling out uniform, fully digital services across municipalities and federal states (Länder). Germany did not reach its goal of digitalising all administrative services for the public and businesses by its national legal deadline (end-2022, Online Access Act (Onlinezugangsgesetz)). The National Regulatory Control Council (Normenkontrollrat) considers the implementation of the Online Access Act to be inadequate and has identified projected labour shortages as a key risk in the absence of efficiency gains through digitalisation. Coordination and cooperation across all administrative levels is insufficient and ownership of delivering digitalised processes seems limited. The Commission’s eGovernment Benchmark shows that the country is also underperforming on digitalising the back office of its administration, which goes beyond the scope of the Online Access Act. Modernising and connecting over 11 000 registers, beyond the first steps under Germany’s recovery and resilience plan, is a key enabler of digital public administration. However, little progress has been made to date, and spending for digital public administration measures has been reduced.
While Germany has made good progress in deploying fibre broadband (FTTP) connections, the country's overall coverage (29.8%) is still the second lowest rate in the EU. The lack of fibre (25.6% coverage of households) and very high-capacity network (37.6%) connections is particularly pronounced in rural areas. Coverage gaps have a negative impact on competitiveness and hamper productivity growth, especially for SMEs. Improving framework conditions for network deployment, for example by increasing planning and implementation capacity in the public sector, is crucial to accelerate fibre coverage. Meeting the network targets will also require improvements to the administrative procedures involved in applying for and granting permits and the standardisation of alternative, less time-consuming installation methods. Continued implementation of Germany’s Gigabit Strategy could remedy these issues and provide for further improvements. However, attention could be paid to planning public interventions in a way that does not crowd out commercial investments, e.g. by increasing demand for the scarce engineering resources.
Reaching climate targets requires further efforts in sectoral decarbonisation for the transport sector. Transport has failed to reach annual national sector-specific emission targets since their inception, including in 2023. Furthermore, cutting carbon emissions in road transport would substantially help achieve Germany's Effort Sharing Target to cut emissions by 50% by 2030, compared to 2005 levels. The transport sector increased its final energy consumption by 6.3% in 2023. Improving the reliability and quality of rail operations and addressing investment gaps and delays in renovation, particularly for freight, would help stimulate demand for public transport and ease road congestion. Creating sufficient capacity on the rail network to accommodate new traffic will require substantial investment.
In view of the close interlinkages between the economies of euro area Member States and of their collective contribution to the functioning of the Economic and Monetary Union, in 2024 the Council recommended that the euro area Member States take action, including through their recovery and resilience plans, to implement the recommendation on the economic policy of the euro area. For Germany, recommendations (1), i and (3) help implement the first, second, third and fourth euro area recommendations.
In light of the Commission’s in-depth review and its conclusion on the existence of imbalances, recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendation (1) below. Policies referred to in recommendation (1) help to address vulnerabilities linked to the persistent large current account surplus. Recommendations i, (3) and i contribute to addressing recommendation (1) in as much as higher investment is concerned. Policies referred to in recommendation (1) contribute to both addressing imbalances and implementing the recommendation for the euro area, in line with recital 31.
1. Submit the medium-term fiscal-structural plan in a timely manner. In line with the requirements of the reformed Stability and Growth Pact, limit the growth in net expenditure24 in 2025 to a rate consistent with putting the general government debt on a plausibly downward trajectory over the medium term and maintaining the general government deficit below the 3% of GDP Treaty reference value. Strengthen public investment and remove obstacles to private investment to boost competitiveness. Enhance the fiscal space for productive spending including by reforming the financing side of the first pillar pension system. Improve the tax mix for more inclusive growth and sustainable competitiveness, also by reducing disincentives to increase hours worked, in particular for second earners.
2. Significantly accelerate the implementation of the recovery and resilience plan, including the REPowerEU chapter once adopted, ensuring completion of reforms and investments by August 2026, and speed up the implementation of cohesion policy programmes, including by allocating sufficient resources to the management of the recovery and resilience plan and cohesion policy programmes. In the context of the mid-term review of cohesion policy programmes continue focusing on the agreed priorities, while considering the opportunities provided by the Strategic Technologies for Europe Platform initiative to improve competitiveness.
3. Address the shortage of skilled workers, particularly by strengthening basic and digital skills, and improving education outcomes, including by providing targeted support to disadvantaged groups. Speed up the digitalisation of public administration including by increasing the geographic coverage of digital public services. Further boost the deployment of very high-capacity digital communication networks, including by facilitating the necessary implementation of private investment projects and mobilising public resources where needed.
4. Accelerate the decarbonisation of the transport sector, including by upgrading the rail network.
Done at Brussels,
For the Council
The President
1OJ L, 2024/1263, 30.4.2024, ELI: data.europa.eu/eli/reg/2024/1263/oj.
2OJ L 306, 23.11.2011, p. 25, ELI: data.europa.eu/eli/reg/2011/1176/oj.
3Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17), ELI: data.europa.eu/eli/reg/2021/241/oj.
4Regulation (EU) 2023/435 of the European Parliament and of the Council of 27 February 2023 amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans and amending Regulations (EU) No 1303/2013, (EU) 2021/1060 and (EU) 2021/1755, and Directive 2003/87/EC (OJ L 63, 28.2.2023, p.
1), ELI: data.europa.eu/eli/reg/2023/435/oj.
5COM(2023) 168 final.
6COM(2024) 77 final.
7COM(2023) 901 final.
8Council Regulation (EU) 2024/1264 of 29 April 2024 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L, 2024/1264, 30.4.2024, ELI: data.europa.eu/eli/reg/2024/1264/oj) and Council Directive (EU) 2024/1265 of 29 April 2024 amending Directive 2011/85/EU on requirements for budgetary frameworks of the Member States (OJ L, 2024/1265, 30.4.2024, ELI: data.europa.eu/eli/dir/2024/1265/oj).
9Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 2024/1263, 30.4.2024, ELI: data.europa.eu/eli/reg/2024/1263/oj). Net expenditure means government expenditure net of (i) interest expenditure, (ii) discretionary revenue measures, (iii) expenditure on programmes of the Union fully matched by Union funds revenue, (iv) national expenditure on co-financing of programmes funded by the Union, (v) cyclical elements of unemployment benefit expenditure, and (vi) one-offs and other temporary measures.
10Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and resilience plan for Germany (10158/21).
11Council Implementing Decision of 8 December 2023 on the approval of the assessment of the recovery and resilience plan for Germany (15572/23).
12SWD(2024) 605 final.
13SWD(2024) 101 final.
14Eurostat-Euro Indicators, 22.4.2024.
15Council Recommendation of 12 July 2022 on the National Reform Programme of Germany and delivering a Council opinion on the 2022 Stability Programme of Germany, OJ C 334, 1.9.2022, p. 35.
16Based on the Commission 2024 spring forecast, the medium-term potential output growth of Germany in 2023, which is used to measure the fiscal stance, is estimated at 7.5% in nominal terms, based on the 10-year average real potential growth rate and the 2023 GDP deflator.
17The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of the general government. It aims to assess the economic impulse stemming from fiscal policies, both those that are nationally financed and those that are financed by the EU budget. The fiscal stance is measured as the difference between (i) the medium-term potential growth and (ii) the change in primary expenditure net of discretionary revenue measures (and excluding temporary emergency measures related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other Union funds.
18Council Recommendation of 14 July 2023 on the 2023 National Reform Programme of Germany and delivering a Council opinion on the 2023 Stability Programme of Germany, OJ C 312, 1.9.2023, p. 38.
19Net primary expenditure is defined as nationally financed expenditure net of (i) discretionary revenue measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) one-offs and other temporary measures.
20The impact of this reclassification is captured by the expenditure growth indicator while having a negligible effect on the government deficit through a similar increase in revenues.
21The figure represents the level of the annual budgetary cost of those measures, including revenue and expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers.
22This contribution is measured as the change in general government primary expenditure, net of (i) the incremental budgetary impact of discretionary revenue measures, (ii) one-offs, (iii) cyclical unemployment expenditure and (iv) expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to the medium-term (10-year) average potential nominal GDP growth rate, expressed as a ratio to nominal GDP.
23Regulation (EU) 2024/795 of the European Parliament and of the Council of 29 February 2024 establishing the Strategic Technologies for Europe Platform (STEP), and amending Directive 2003/87/EC and Regulations (EU) 2021/1058, (EU) 2021/1056, (EU) 2021/1057, (EU) No 1303/2013, (EU) No 223/2014, (EU) 2021/1060, (EU) 2021/523, (EU) 2021/695, (EU) 2021/697 and (EU) 2021/241, OJ L, 2024/795, 29.2.2024, ELI: data.europa.eu/eli/reg/2024/795/oj.
24According to Article 2 i of Regulation (EU) 2024/1263, ‘net expenditure’ means government expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of the Union fully matched by revenue from Union funds, national expenditure on co-financing of programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs and other temporary measures.
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