Alexia Zammit

Economist, European Commission Representation in Malta

The European Semester: what it is and how it affects Malta

Tuesday 12th July 2016

The European Semester is the EU’s annual cycle of economic policy coordination. Each year, the Commission undertakes a detailed analysis of EU Member States’ plans for budgetary, macroeconomic and structural reforms and provides them with country-specific recommendations intended to encourage national efforts to further boost jobs and growth for the coming 12-18 months.

These recommendations reflect the Commission’s economic and social agenda, which focuses on three mutually reinforcing pillars: re-launching investment, pursuing structural reforms to modernise our economies, and responsible fiscal policies. This is outlined in the Commissions' Annual Growth Survey adopted on 26th November 2015, which marked the start of this year's Semester.

The European Semester was created in the wake of the recent financial and economic crisis, which demonstrated a need for stronger economic governance and better policy coordination between the EU Member States. In a Union of highly integrated economies, enhanced policy coordination can help prevent discrepancies and contribute to ensuring convergence and stability in the EU as a whole, as well as in its Member States. For these reasons and as a part of a wider reform of the EU economic governance, the European Semester was established in 2010 with the first European Semester cycle taking place in 2011.

The country-specific recommendations reflect the Commission's findings and the discussions held with the authorities, social partners, NGOs and civil society during a number of meetings and events held both locally and in Brussels between December and May each year.

These meetings shape the analysis of the Commission that is first reflected in the Country Reports published in February, which analyse Member States' economic and social policies and assess the progress made by each Member State in addressing previous year's recommendations. This report, together with national documents and the extensive discussions held with stakeholders before and after the publication of the Country Report is the basis upon which the recommendations are made.

The country-specific recommendations proposed by the European Commission for Malta in May 2016 relate specifically to public finances and the labour market. On public finances, additional measures are being requested to address both the risk of deviations from budgetary projections in the short term, as well as to step up efforts to ensure the long-term sustainability of public finances. With respect to the labour market, measures need to be taken to strengthen Malta's labour supply, notably through increased participation of low-skilled persons in lifelong learning.

Another area of concern raised by the Commission in its Recommendation to Council relates to muted investment in Malta. Though this can be partly attributed to structural changes in the economy, particularly a shift to less capital-intensive service sectors, other bottlenecks affecting investment activity in Malta still prevail. Among these are the insufficient capacity to innovate, skills bottlenecks, inefficiencies in public administration and the justice system, regulatory burden and significant traffic congestion. Transport and logistical infrastructure is reported to be one of the major barriers to foreign investment.

The recommendations are expected to be adopted shortly by the Council in time for Member States to reflect them in next year's Budget and other policies.