KOMISJONI TEATIS - COM(2026) 200

EN EN

EUROPEAN COMMISSION

Brussels, 3.6.2026

COM(2026) 200 final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF

THE REGIONS AND THE EUROPEAN INVESTMENT BANK

2026 European Semester - Spring Package

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1. INTRODUCTION

At a time of major geopolitical shifts and tensions, the EU needs to continue strengthening

its competitiveness and strategic autonomy to sustain its economic and social resilience and

cohesion. The economic environment is marked by profound geopolitical uncertainty and

intensifying global competition, persistent global tensions, heightened security risks, and

increasingly severe climate change impacts. In addition, persistent energy price volatility and

rising global tariffs continue to elevate the cost of living, strain supply chains and increase

operational costs, affecting in particular small and medium-sized enterprises (SMEs). These

developments expose several weaknesses and compound Europe’s long-standing challenges

linked to subdued productivity growth and innovation. However, the EU has also shown resilience

by navigating multiple crises. It is implementing an ambitious competitiveness agenda and is

making progress on digital innovation, decarbonisation goals, and economic security.

The 2026 European Semester Spring Package aims to build on the EU’s strengths through

coordinated action to boost competitiveness, secure strategic autonomy, increase resilience,

and strengthen preparedness while maintaining fiscal sustainability. The Competitiveness

Compass (1) remains the guiding framework for this European Semester cycle. It builds on the vast

potential of the single market, fosters macroeconomic and fiscal stability and aligns structural

reforms and investments with the EU’s strategic priorities of closing the innovation gap,

decarbonising our economy, reducing strategic dependencies, promoting skills and quality jobs,

ensuring social fairness and cohesion, and simplifying the business environment. These are also

some of the core ambitions of the “One Europe, One Market” roadmap, the swift implementation

of which remains crucial. The EU is pursuing these objectives while upholding its commitment to

implementing the European Pillar of Social Rights and the UN Sustainable Development Goals.

The 2026 European Semester provides a comprehensive framework to align national and

regional reforms and investments with EU priorities. Building on the progress achieved

through the Recovery and Resilience Facility (RRF), which has boosted reform and investment

implementation, and the mid-term review of cohesion policy, the 2026 European Semester will

continue to provide a key analytical basis to identify and prioritise reform and investment needs

across a broad range of policy areas including measures to address economic, social and territorial

disparities. Taking into account this analysis, the EU, Member States and other stakeholders need

to coordinate investments and reforms to improve the EU’s economic security and strengthen

strategic EU-wide value chains within shared competitiveness priorities. In this Spring Package,

the Commission places a strong emphasis on assessing the progress made in implementing the

comprehensive set of 2025 country-specific recommendations (CSRs). Coherence and synergies

between the European Semester and other governance frameworks, such as the Digital Decade and

the CAP recommendations, will be ensured.

1A Competitiveness Compass for the EU, COM(2025) 30 final.

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The Commission calls on the European Council to endorse and on the Council of the EU to

adopt the Commission recommendations for the 2026 CSRs. It also calls on all Member States

to implement the CSRs fully and in a timely manner, in close dialogue with their social partners,

civil society organisations and other stakeholders.

2. KEY POLICY CHALLENGES AND RECOMMENDATIONS

Responding to emerging threats

Addressing the energy crisis

Fossil fuels are at the core of the current energy crisis, which highlights the urgent need for

a decisive European response to ensure clean, homegrown and affordable energy, and

security of energy supply, and to safeguard EU industrial competitiveness. The energy

transition remains the most effective strategy for achieving Europe’s strategic autonomy,

strengthening resilience, structurally lowering energy prices, and delivering the clean, abundant

and homegrown energy needed to power the economy of the future.REPowerEU, which was

launched in May 2022 to respond to Russia’s full-scale invasion of Ukraine has already

demonstrated that joint action can effectively reduce energy demand and imports, stabilise energy

markets, strengthen resilience and boost electrification. Thanks to energy investments supported

by several EU funds, the EU is significantly better placed than before to withstand energy market

volatility. In particular, the Connecting Europe Facility helped finance critical cross-border energy

infrastructure, thereby strengthening interconnections and supporting the development of an

integrated and sustainable European energy market, and a genuine Energy Union.

Through the Accelerate EU initiative (2 ), the Commission has proposed a coordinated

approach to bring immediate relief to vulnerable households and companies facing energy

price spikes, and to make the energy system more resilient. To ensure security of supply,

greater EU coordination, including for the refilling of gas storage facilities for the winter and the

collective release of oil reserves is essential. It will be equally important to ensure the availability

of critical fuels, such as jet fuel and diesel, and avoid disruptions to cross-border transport and the

single market. At the same time, Member States need to ensure that emergency measures taken to

reduce the economic and social impact of the energy crisis on households and businesses are

temporary, targeted, timely, proportionate, and fiscally sustainable, and that they do not increase

the demand for fossil fuels. With the Middle East crisis Temporary State aid Framework (3), the

Commission adopted targeted and temporary rules to facilitate support for the most exposed

sectors of the economy. Finally, the EU needs to speed up the energy transition to continue

reducing its reliance on fossil fuels – the only way to ensure our true energy independence. The

EU, Member States, industry and all other relevant stakeholders must continue their joint efforts

2 AccelerateEU, COM(2026) 370 final. 3 Communication from the Commission – Middle East Crisis Temporary State Aid Framework, OJ C, C/2026/2593, 5.5.2026;

ELI: http://data.europa.eu/eli/C/2026/2593/oj.

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to improve energy infrastructure across Europe, including by advancing the Energy Highways set

out in the European Grids Package. The upcoming electrification action plan will set an ambitious

electrification target and measures to address barriers in the industrial, transport, and building

sectors. The Commission will also present a legislative proposal on network charges and taxation,

ensuring that electricity is taxed less than natural gas, among other things. The Commission will

coordinate an EU exercise (AccelerateEU investment chapter) to assist Member States to make

maximum use of and reallocate available EU funding, e.g. cohesion policy funds, where feasible

and in line with Member States’ and regions’ preferences. In parallel, the Circular Economy Act

will support industries in replacing virgin fossil materials with circular and bio-based ones. These

efforts should go hand in hand with accelerated and full implementation of the REPowerEU plan

and energy-related CSRs to provide clean and affordable energy, circular solutions, enhance

energy security, and strengthen resilience to external price shocks. It should also be in line with

other initiatives, such as RESourceEU, that prevent the weaponisation of the EU’s excessive

dependencies on raw materials.

Bolstering economic security

Economic security remains a pressing priority for the EU amid persistent geopolitical

tensions, supply chain vulnerabilities, and strategic dependencies. Member States continue to

face risks stemming from strategic dependencies, particularly in energy, critical raw materials,

fertilisers and key technologies, which expose economies to price volatility, risks to food security,

disruptions, and external pressure. While progress has been made in diversifying energy sources,

reducing dependence on single suppliers, and accelerating the clean and digital transitions,

challenges persist. Energy-intensive industries remain vulnerable to high energy prices, and delays

in renewable deployment, grid resilience, and storage investments hinder long-term energy

security. Critical raw material dependencies, often concentrated in non-EU suppliers, threaten

strategic sectors essential for the digital and clean transitions, underscoring the need for circular

economy advancements, domestic production, and supply chain diversification. To strengthen

economic security, Member States must deepen Single Market integration, fast-track strategic

investments in clean technologies manufacturing capacity, technological sovereignty and

cybersecurity, infrastructure resilience, and crisis preparedness. The proposed Industrial

Accelerator Act aims to promote Europe’s economic security by strengthening industrial capacities

in key sectors while keeping on track with the transition to decarbonised manufacturing.

Enhancing the EU’s defence readiness

Member States continue to strengthen their defence readiness and capabilities as called for

in the 2025 CSRs. Member States have made progress in strengthening their defence readiness

and capabilities, in particular thanks to the additional fiscal space of up to 1.5% of GDP in 2025-

2028 linked to the activation of the national escape clause in 17 Member States. These efforts

should be sustained, including through investments to ramp up and modernise production capacity

to meet the demand surge. Joint procurement initiatives, which offer demand visibility to industry,

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reduce market fragmentation and can lower unit costs, must be continued. Progress on these fronts

is necessary and in line with the Commission’s European Defence Readiness 2030 objectives. To

this end, the Security Action for Europe (SAFE) initiative is providing up to EUR 150 billion in

competitively priced, long-maturity loans to Member States requesting financial assistance for the

procurement of defence capabilities. The Commission has already endorsed 18 out of the 19

national defence investment plans submitted by Member States to request SAFE loans, to provide

EUR 130 billion of financial support. Additionally, cohesion policy has redirected

EUR 11.9 billion towards defence and dual-use investment under the medium-term review.

Looking ahead, there is a critical need for sustained, long-term investment in civil preparedness,

including to enhance national cybersecurity and space assets, which is a strategic enabler of

defence readiness. This need is underscored by developments in the eastern regions bordering

Russia, Belarus, and Ukraine.

Ensuring macroeconomic stability

Member States need to sustain medium-term fiscal sustainability against a background of

competing needs for public finances. Member States face growing demands on public spending

driven by the urgent need to bolster defence spending and boost competitiveness, while also

confronting the long-term fiscal costs of demographic change (4) and the rising costs of climate

change impacts, in a context of already high public debt. In parallel, the EU’s external environment

has become more uncertain, which compounds the challenges for the economies and the policy

making of the Member States and the EU. As part of the European Semester, the Commission has

assessed Member States’ compliance with the requirements stemming from the European

economic governance framework, which is built around Member States’ medium-term fiscal

structural plans (see Box 1).

Measures that strengthen the structural resilience of the European energy system and

accelerate the transition away from fossil fuels may benefit from the existing flexibility within

the fiscal framework. In order to preserve Europe’s long-term energy security and mitigate the

economic implications associated with the conflict in the Middle East, Member States will be faced

with substantial fiscal costs in the short run. Upon request by the Member States, the scope of the

current National Escape Clause for defence spending could be broadened to accommodate the

measures undertaken since February 2026 to reduce the dependence on imported fossil fuels and

thereby contribute to Europe’s security and defence. Measures which could be considered would

include support for households and firms to reduce their dependency on fossil fuels and promote

decarbonisation, measures that accelerate electrification of end use sectors, investments in

electricity grids, storage of electricity (e.g. batteries), energy saving and capacity expansion of

clean energy sources.

4 Communication from the Commission to the European Parliament, the Council, the European Economic and Social

Committee and the Committee of the Regions “Demographic change in Europe: a toolbox for action”.

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Fiscal sustainability safeguards would remain fully in place. The existing cap on the flexibility,

of up to 1.5% of GDP in additional expenditure, under the National Escape Clause for defence

would remain unchanged. Therefore, while the scope of the flexibility may be broadened the risk

to fiscal sustainability would remain contained. Within the existing cap (1.5% of GDP), a dedicated

annual cap of 0.3% of GDP would apply specifically to the energy support measures and be

available for 2026-2028 (5), with a cumulative cap of 0.6% of GDP over that same period. These

limits are consistent with the purpose of addressing unavoidable short-term fiscal costs and ensure

a balance between the flexibility provided for energy-related supports and those available for

defence expenditure. The expenditure exceeding the cap would remain subject to the standard

compliance assessments under the fiscal framework. Member States should continue to use the

period until 2028 to make the necessary budgetary adjustments to accommodate the higher level

of defence spending in the future.

Member States will have the opportunity to request the expansion in the scope of their

existing National Escape Clause over the coming months. Member States that have not yet

requested the activation of the National Escape Clause for defence may do so at any time. The

Commission will assess all requests received to ensure that the extension or activation of the clause

does not endanger fiscal sustainability over the medium term. The Commission will provide in due

time further clarity to Member States around the procedural and operational requirements,

including the reporting by Member States of sufficiently granular data and information to monitor

and assess eligibility of the proposed measures in support of strengthening the structural resilience

of the European energy system and accelerating the transition away from fossil fuels, and conduct

fiscal surveillance.

Over the past year, macro-financial vulnerabilities have evolved diversely across Member

States, having narrowed in some cases, while uncertainty has augmented very recently. Some

Member States face particular challenges to their macroeconomic stability, which in some cases

have cross-border relevance, thereby are a concern for the euro area and the EU as a whole. Under

the macroeconomic imbalance procedure, the Commission has identified macroeconomic

imbalances or excessive imbalances in four Member States(see Box 2 and Appendix 4).

Box 1: Fiscal surveillance under the Stability and Growth Pact

In spring 2026, the Commission’s assessment of Member States’ compliance with the

relevant Council recommendations covers both 2025 and 2026. The assessment for 2026,

based on the Commission Spring 2026 Forecast, will be followed up by a further assessment in

autumn, and another assessment will take place in spring 2027 based on outturn data for 2026.

The core of the Commission’s assessment consists in comparing outturn data and the

5 To ensure equal treatment, Member States that might have already fully used the flexibility under the NEC to increase

defence expenditure could receive temporary and limited additional flexibility under the same conditions, including

the condition that overall fiscal sustainability risks remain contained.

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Commission’s projections for net expenditure (6) growth with the maximum growth rates of net

expenditure as recommended by the Council (see Appendix 5 and the Fiscal Statistical Tables

(7). For Member States for which the national escape clause for defence spending (8) has been

activated (9), the assessment of compliance takes this flexibility into account (10).

For the ten Member States currently under excessive deficit procedure (EDP)(11), the

Commission assessed the action taken in response to the Council recommendations under

the EDP. For Malta, the Commission is today recommending to the Council to close the

excessive deficit procedure, as the general government deficit was successfully reduced to below

3% of GDP in 2025 – in advance of the deadline that the Council established – and is projected

to remain below 3% of GDP in 2026 and 2027. At the same time, the Commission notes that,

for Malta, the net expenditure growth is above the ceilings recommended by the Council in both

2025 and 2026, with the corresponding deviations in cumulative terms being above 0.6% of

GDP. For the nine other Member States under EDP (Belgium, France, Hungary, Italy,

Austria, Poland, Romania, Slovakia and Finland), and after accounting for the flexibility

from the national escape clause where relevant, the Commission considers that effective action

has been taken at this stage and that the procedure should be kept in abeyance. For Italy, the net

expenditure growth in 2025 was above the recommended ceilings. However, in cumulative

terms, the net expenditure growth over 2024-2025 was only marginally above the recommended

ceilings, and Italy is projected to correct the excessive deficit in 2026, in line with the deadline

set by the Council (12). At the same time, the Commission assesses France to be at risk of non-

compliance with the recommended annual growth rate of net expenditure in 2026 by a small

margin, while it is projected to be compliant with the cumulative growth rate. Hungary is

assessed to be at risk of material non-compliance in 2026.Therefore, on current projections, an

overall assessment of action taken may be needed at a later stage. In case these assessments

would point to a lack of effective action, this could then require a stepping-up of the EDP (13).

6 Net expenditure as defined in Article 2, point (2), of Regulation (EU) 2024/1263: ‘net expenditure’ means

government expenditure net of (i) interest expenditure; (ii) discretionary revenue measures; (iii) expenditure on

programmes of the Union fully matched by revenue from Union funds; (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. 7 Fiscal Statistical Tables providing background data relevant for the assessment of the budgetary policies of the

Member States, SWD(2026) 200 final, Brussels 3.6.2026. 8 The national escape clause for higher defence spending provides limited and temporary flexibility, up to 1.5% of

GDP compared to a reference year, over the period 2025 to 2028. 9 To date, the Council has activated the national escape clause for defence spending for 17 Member States (Belgium,

Bulgaria, Czechia, Denmark, Germany, Estonia, Greece, Croatia, Latvia, Lithuania, Hungary, Austria, Poland,

Portugal, Slovenia, Slovakia, Finland). For Spain, on 22 May 2026 the Commission has adopted recommendation to

the Council to activate the national escape clause for defence, which is now pending adoption by the Council. 10 For those Member States, the assessment focusses on the comparison in cumulative terms, and checks whether any

positive deviation from the recommended ceilings is explained by a corresponding increase in defence expenditure.

The flexibility provided for by the national escape clause for defence is the only flexibility taken into account in the

Commission’s assessment in spring 2026. 11 Belgium, France, Italy, Hungary, Malta, Austria, Poland, Romania, Slovakia and Finland. 12 Based on data provided by Eurostat, Italy’s general government deficit decreased from 3.4% of GDP in 2024 to

3.1% of GDP in 2025. Based on policy measures known by the cut-off date of the forecast, the Commission Spring

2026 Forecast projects a deficit of 2.9% of GDP in both 2026 and 2027. 13 At the current juncture, there is no outturn data for 2026 and a stepping-up of the procedure could be considered at

a later stage if the comparison between net expenditure growth projected in the Commission forecast and the

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Also, the Commission stresses that the fiscal situation in Romania remains fragile with the

largest 2025 deficit ratio in the Union and where there are serious implementation risks which

require a strong and persistent focus on fiscal adjustment in 2026 and subsequent years.

For the Member States not currently in EDP, the Commission assessed progress with the

implementation of the medium-term plans and compliance with the relevant Council

recommendations. Among these, in 2025, and after accounting for the flexibility from the

national escape clause where relevant:

• Czechia, Denmark, Germany, Estonia, Greece, Spain, Latvia and Sweden are

assessed as compliant, as the net expenditure growth is below the maxima recommended

by the Council or the cumulated deviation is within the flexibility provided by the

national escape clause.

• Ireland, Cyprus and Portugal are deemed to be compliant with the budgetary policy

obligations of the Stability and Growth Pact thanks to their budgetary position in

surplus, thus contributing to a reduction in their government debt-to-GDP ratios. At the

same time, the Commission notes that Portugal exceeds the recommended maximum

growth of net expenditure, while Cyprus and Ireland materially exceed the recommended

maximum growth of net expenditure.

• Lithuania and Slovenia are assessed as non-compliant since the net expenditure growth

is above the ceilings recommended by the Council, but the corresponding deviations

remain below the 0.6% of GDP (in cumulative terms) threshold. However, the

Commission notes that for Lithuania the general government deficit and public debt are

projected below the 3% and 60% of GDP reference values.

• Luxembourg, the Netherlands, Bulgaria and Croatia are assessed as materially non-

compliant with the recommended net expenditure ceilings, with the corresponding

deviations above the 0.3% of GDP (in annual terms) and/or 0.6% of GDP (in cumulative

terms) thresholds. At the same time, the Commission notes that for Luxembourg and the

Netherlands the government deficit and public debt are below the 3% and 60% of GDP

reference values in 2025.

In 2026, again after accounting for the flexibility from the national escape clause where relevant:

• Czechia, Denmark, Estonia, Germany, Ireland, Greece, Latvia are projected to be

compliant, as the net expenditure growth is below the maxima recommended by the

Council or the cumulated deviation is within the flexibility provided by the national

escape clause.

• As in 2025, Cyprus and Portugal are projected to be compliant with the budgetary

policy obligations of the Stability and Growth Pact thanks to their budgetary position

projected to stay in surplus or close to balance in 2026. At the same time, the

Commission notes that Portugal risks to exceed the recommended maximum growth of

net expenditure and Cyprus is at risk of materially exceeding the recommended

maximum growth of net expenditure.

recommended corrective net expenditure path (taking the flexibility for defence spending under the national escape

clause into consideration as appropriate) pointed to a particularly serious case of non-compliance.

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• Spain, Luxembourg and the Netherlands are found at risk of non-compliance.

However, for Luxembourg and the Netherlands the Commission notes that the general

government deficit and public debt are projected below 3% of GDP and 60% of GDP

respectively in 2026.

• Lithuania and Slovenia, and, as in 2025, Bulgaria and Croatia, are assessed at risk of

material non-compliance in 2026. At the same time, the Commission notes that, for

Lithuania and Croatia, the general government deficit and public debt are projected

below the 3% and 60% of GDP reference values. Finally, for Slovenia, a confirmation

of the material non-compliance based on outturn data for 2026 could trigger a report

under Article 126(3) TFEU for the assessment of compliance with the debt criterion.

• Sweden is assessed at risk of material non-compliance with the recommended

annual growth rate of net expenditure in 2026, while it is projected to be compliant

with the cumulative growth rate. At the same time, the Commission notes that for

Sweden the general government deficit and public debt are projected below the 3% and

60% of GDP reference values.

In the assessment of implementation of the medium-term plans, the Commission also

considered the set of investments and reforms underpinning an extension of the respective

fiscal adjustment periods. This concerns eight Member States ( 14 ), for which the fiscal

adjustment period in these plans had been extended from four to seven years. For these Member

States, the Commission has assessed the implementation of the key steps of those reforms and

investments, taking into account the information provided in the Annual Progress Reports. In

the light of its assessment, the Commission considers that, overall, all the concerned Member

States have complied with their commitments in terms of reforms and investments in a

satisfactory manner (see Appendix 5).

Finally, the Commission has assessed compliance with the deficit criterion for five Member

States (15), to decide whether there is case to recommend to the Council new decisions on

the existence of an excessive deficit. The assessment leads to the conclusion that at this stage

there is no case to open an excessive deficit procedure for Germany, Estonia and Slovenia. For

Latvia, overall, the deficit criterion is assessed as fulfilled. Instead, for Bulgaria, taking into

account the Opinion of the Economic and Financial Committee on its report, the Commission

will consider proposing to open an excessive deficit procedure.

Given the recent developments in the energy markets since the outbreak of the war in the

Middle East in February 2026, many Member States have adopted fiscal policy measures

to mitigate the social and economic impact of high energy prices on households and

businesses. The Commission Spring 2026 Forecast incorporates the budgetary cost of such new

measures of EUR 14.5 bn (0.07% of the EU GDP) in 2026 for the EU as a whole. This estimate

assumes that the measures will come to an end in accordance with the expiring dates stated in

14 Belgium, Germany, Spain, France, Italy, Austria, Romania and Finland. 15 Report from the Commission, prepared in accordance with Article 126(3) of the Treaty on the Functioning of the

European Union, 3.6.2026, COM(2026) 302 final. Among the Member States currently not in EDP, at end of 2025

the general government gross debt ratio exceeded the reference value in Germany, Greece, Spain, Portugal and

Slovenia. For these Member States, the debt ratio is assessed as sufficiently diminishing and approaching the reference

value at a satisfactory pace. Therefore, there were no Member States for which compliance with the debt criterion had

to be further examined in the report under Article 126(3) TFEU.

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the respective laws at the cut-off date of the forecast. If these measures were to be extended until

end-2026, their fiscal cost would increase to EUR 38.6 bn (0.2% of the EU GDP) in 2026.

Three-quarters of the support is being spent in a non-targeted manner, with the remaining quarter

being targeted at vulnerable households or energy-intensive firms. Moreover, more than two-

thirds of the estimated budgetary cost corresponds to measures that aim at directly impacting

the marginal cost of energy consumption, such as cuts to excise duties. The remaining one-third

corresponds to measures that provide temporary income support to households or (non-price)

compensations to firms.

Box 2: Macroeconomic imbalances in the Member States

The Commission has assessed the existence of macroeconomic imbalances for the seven

Member States selected for in-depth reviews in the 2026 Alert Mechanism Report. All

those Member States had been identified with imbalances or excessive imbalances in the

previous cycle of surveillance under the macroeconomic imbalance procedure (MIP). Like in

the past two MIP annual cycles, the 2026 in-depth reviews were presented to the Member States

before the publication of the Spring Package to enable more in-depth multilateral discussions in

the Council Committees before the country-specific recommendations were formulated (16).

The classification of imbalances is based on three criteria: (i) the gravity of imbalances;

(ii) their evolution and prospects; and (iii) policy responses. These criteria are considered

within the forward-looking orientation of the MIP applied since the economic governance

review concluded in 2024. Specifically, under the forward-looking approach, those three criteria

remain in place, but more emphasis is placed on the evolution and prospects of imbalances and

the policy responses by the national authorities to overcome those imbalances or the risks they

present.

Over the past year, vulnerabilities have evolved diversely across Member States but have

narrowed in several cases, while uncertainty has augmented recently. Inflation fell further

in most of the euro area and the EU, though at different speeds, current accounts improved, and

high debts declined in various cases, while the banking sectors have remained healthy. On the

contrary, house prices accelerated in several countries. Nonetheless, this annual cycle of MIP

implementation ends against a backdrop of higher uncertainty, as the conflict in the Middle East

has raised concerns about energy prices, higher and more volatile inflation, tighter financing

conditions, and slower economic growth. Predicting how risks will evolve and how they will

affect the macroeconomic stability of the EU, the euro area, and of the individual Member States,

has become more challenging.

The Commission took several decisions under the MIP. Vulnerabilities are receding in a few

of the Member States subject to an in-depth review and in some cases leading to a finding of no

imbalances under the MIP. Relevant challenges remain in the other Member States for which an

in-depth review was undertaken. In particular:

• Greece is assessed as no longer experiencing imbalances. Vulnerabilities related to

government and external debt have receded over recent years, supported by steady GDP

16 SWD (2026) 137 to 143. The seven in-depth reviews were shared with Member States through the Council’s Economic Policy

Committee and its LIME working group in two batches, one in mid-April (for the Netherlands, Romania, Sweden), another one in

early-May (for Greece, Hungary, Italy, Slovakia). They are also published as European Economy Institutional Papers.

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growth, with budgetary surpluses further contributing to decreases in government debt;

banks’ non-performing loans have declined and balance sheets have improved; the current

account deficit remains sizeable but its favourable financing mitigates external

sustainability risks; Greece has implemented relevant reforms to reduce its long-standing

vulnerabilities.

• The Netherlands is assessed as no longer experiencing imbalances. Vulnerabilities related

to high levels of household debt, the housing market, and the large current account surplus

have been present over the years but have lessened recently.

• Sweden is assessed as no longer experiencing imbalances. Vulnerabilities related to its

real estate market and high levels of private debt remain but their gravity has lessened

recently.

• Italy continues to experience imbalances as vulnerabilities related to high government debt

and weak productivity growth, which have cross-border relevance, persist, and continued

and effective implementation of growth-enhancing reforms and investments, together with

a prudent fiscal stance, remains crucial to reduce those vulnerabilities.

• Hungary continues to experience imbalances as vulnerabilities related to competitiveness,

government financing needs, and house prices persist, and policies have continued

compounding those vulnerabilities.

• Slovakia continues to experience imbalances as vulnerabilities related to the external and

government balances, competitiveness, the housing market, and household debt persist,

with policy action remaining limited.

• Romania continues to experience excessive imbalances; vulnerabilities related to fiscal

and current account deficits have diminished somewhat recently but remain very

significant, while cost competitiveness continues deteriorating albeit less than before. The

Commission will continue monitoring the progress of relevant policy action to overcome

those excessive imbalances.

Appendix 4 details the country-specific aspects for the seven Member States concerned.

Against this backdrop, and in light of the persistently high debt ratios in a number of

Member States, enhancing the quality of public finances and the efficiency of spending is

critical to delivering real value for taxpayers and ensuring fiscal sustainability. This requires

a strong prioritisation of spending and making it more efficient and effective, including through

spending reviews. In parallel, modernising and streamlining taxation systems can help generate

the necessary revenues while fostering economic resilience.To support credible and growth-

friendly fiscal policies, several countries have reformed their overall fiscal governance. Some

countries have strengthened independent fiscal institutions, made public finance reporting more

transparent and improved the management of public investments. The 2026 CSRs call on Member

States to enhance the quality of public spending by making health care and long-term care systems

more sustainable and by stepping up the use of spending reviews for example in Poland, Slovenia,

and Spain. This is particularly relevant in Member States where public revenue as a share of GDP

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is already high. Some Member States are also recommended to improve the sustainability of their

pension systems. For instance, Austria, Germany, Italy, Luxembourg and Poland are

recommended to apply measures that encourage a higher effective retirement age. Meanwhile,

Cyprus, Czechia, Lithuania, Malta, and Portugal – as well as Austria, Germany, and Luxembourg

– should support retirement income by strengthening their supplementary pension schemes, which

also supply long-term capital to their economies.

A number of Member States have taken action to strengthen tax compliance and modernise

revenue collection. Among the Member States that had received a CSR related to taxation policy

in 2025, examples of positive developments include enhanced digitalisation of tax administrations

– such as Greece’s digital tax reporting system and related e-invoicing reforms and Portugal’s steps

to improve compliance by streamlining and digitalising tax procedures. Several Member States are

making efforts towards broadening their tax bases and rebalancing their tax mix. Additionally,

some efforts to combat tax evasion and avoidance have progressed. By comparison, less progress

has been made on the long-standing need to tackle aggressive tax planning and the significant

challenges posed by tax gaps. European governments forego more than EUR 100 billion in

revenue every year due to tax non-compliance. Furthermore, there are several thousand tax

expenditure provisions, which can be costly and do not always have a good rationale. Such

complexity in taxation hinders fair and efficient revenue mobilisation. The proposed 2026 CSRs

call for reducing these gaps to safeguard tax fairness and revenue sustainability, while further

improving the tax mix to support sustainable competitiveness. For instance, Ireland, Poland,

Bulgaria and Estonia are recommended to broaden tax bases, including by tapping into revenue

from tax sources less detrimental to growth. Continued modernisation and digitalisation of tax

administrations can help achieve these objectives.

Strengthening the EU’s competitiveness

Channelling savings towards productive investments to boost competitiveness

In 2025-2026, Member States made modest progress in improving access to finance, and

disparities persist across Member States. Positive developments include robust banking and

insurance sectors and continued financial stability. However, challenges endure, including

persistent financing gaps, especially for scaleups, but in some Member States also start-ups and

SMEs; inefficient insolvency frameworks in several Member States; and still under-developed and

fragmented capital markets that fail to sufficiently complement debt finance provided by banks.

With the proposed 2026 CSRs, the Commission calls for national measures to build the

Savings and Investments Union (17). The Commission calls on several Member States to expand

their financing sources by incentivising institutional and retail investor participation in capital

markets, notably equity markets. In many Member States, supplementary pension funds have the

potential to both improve individuals’ living standards in old age and channel long-term savings

17 Savings and Investments Union, COM(2025) 124 final.

12

into productive investment, thereby helping to improve access to finance and strengthen Member

States’ competitiveness.

At EU level, several initiatives launched under the Savings and Investments Union strategy

also aim to improve the flow of savings into investment. The Recommendation on increasing

the availability of savings and investment accounts with simplified and advantageous tax

treatment (18) and the Communication on a financial literacy strategy for the EU (19) map out a

clear strategy to promote greater retail investor participation in capital markets. The

Communication on enhancing the capacity of the EU supplementary pension sector to improve

retirement income and supply long-term capital to the EU economy (20) aims to mobilising

Europe’s pension funds’ assets to expand financing options for all firms. Lastly, the market

integration and supervision package (21) adopted in December 2025 seeks to create a more

integrated, efficient and competitive capital market giving people better options for growing their

wealth and helping businesses access funding.

Closing the innovation gap

Some Member States took steps to boost research and innovation, as called for by the 2025

CSRs. However, progress remains limited and uneven across EU Member States and regions. With

R&D spending stagnating at 2.2% of GDP in 2024, the EU lags behind global leaders in R&D

intensity such as the US (3.4% of GDP), Japan (3.4%) or South Korea (5.0%) and, since 2020, it

has been overtaken by China (2.6%). Still, positive developments were recorded in improving

financing conditions for start-ups and scale-ups, for example in Austria, and Greece. Progress was

also made in facilitating technology transfer and providing incentives for innovation and research

in Czechia and Germany. Regarding scientific excellence, Ireland took measures to strengthen

public R&D funding, although sustained increases are needed, while Estonia enhanced public

support for applied research.

As significant shortfalls persist, the 2026 CSRs prioritise closing Europe’s innovation gap

and boosting R&D investment. They highlight the need to: foster public and private R&D

investment; strengthen innovation systems by improving business-academia cooperation, the

efficiency of public support to business innovation and access to finance; and enhance access to

innovation, including, where relevant, in regions lagging behind. Czechia, Spain, France and

Poland are advised to deepen knowledge transfer, support innovation uptake, and provide an

innovation-friendly environment for startups and scaleups. Among innovation frontrunners,

Denmark is encouraged to further strengthen SME innovation, technology diffusion, and access to

growth financing. In addition to fostering the digitalisation of businesses, shortages in some

science, technology, engineering and mathematics (STEM) fields and of information and

18 Commission Recommendation 2025/2029. 19 COM(2025) 681 final. 20 COM(2025) 839 final. 21 Further development of capital market integration and supervision within the Union, COM(2025) 940 final.

13

communications technology specialists in strategic technological domains should be further

addressed, including by incentivising female enrolment in these disciplines.

EU-level initiatives aim to further support efforts to close the innovation gap. These initiatives

include the Startup and Scaleup Strategy (22), including the launch of a EUR 5 billion Scaleup

Europe Fund, and the envisaged European Research Area Act, which aims to strengthen (23) the

free circulation of knowledge, researchers and technology, as well as the upcoming European

Innovation Act, which aims to boost deployment and commercialisation of innovation (24). As part

of the next MFF, the proposed European Competitiveness Fund will mobilise private capital at

scale. Through a close connection with Horizon Europe, it will support investment at all stages

from research and innovation, through scale up and industrial deployment, to manufacturing.

Member States should accelerate the uptake of artificial intelligence and other cutting-edge

technologies such as quantum, cloud, high-performance computing, in line with the Apply AI (25)

and the AI Continent Action Plan (26). Together with the deployment of AI Factories and AI

Gigafactories, the forthcoming Chips Act 2 and the Cloud and AI Development Act, will mobilise

critical computing, data and infrastructure capacity and talent to secure Europe’s leadership in

artificial intelligence and frontier technologies. Finally, Important Projects of Common European

Interest (IPCEIs) are a powerful State aid instrument for cross-border projects driving innovation

and fostering European competitiveness.

Delivering simple and digital public services

Modest progress has been made in reducing administrative burdens and modernising public

administration. Some positive developments include streamlined permitting procedures and

improved regulatory impact assessments. Digitalisation and modernisation of public services,

including justice systems, has advanced in several Member States, while progress has stalled in

others, for example due to project delays (e.g. in Cyprus). Reforms of public administration were

also undertaken in several Member States, for instance Greece’s civil service digital upskilling

programmes.

Therefore, the proposed 2026 CSRs call on Member States to increase administrative

efficiency, reduce administrative burdens, and foster digital public services. Belgium, Croatia

and Spain, for example, are called upon to speed up the issuing of construction, environmental and

business permits. Addressing overlapping competencies, pursuing regulatory simplification at

national, regional and local level and improving coordination across those levels would reduce

administrative burdens on people, businesses and administration, thereby fostering

competitiveness and innovation. Digitalising public administration requires not only improving

the provision and interoperability of digital public services, e.g. in Germany and Bulgaria and

22 The EU Startup and Scaleup Strategy, COM(2025) 270 final. 23 European Research Area (ERA) Act. 24 European Innovation Act. 25 Apply AI Strategy | Shaping Europe’s digital future. 26 The AI Continent Action Plan | Shaping Europe’s digital future

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guarantee equal digital access to the justice system and other public services across regions and

investing in the digital skills of civil servants. To increase civil service capacity, there is also a

need to improve governance and coordination including at local level, for example Croatia. The

quality of law-making can be improved by strengthening impact assessments, ensuring stakeholder

consultations and reducing the use of emergency ordinances, for example in Romania.

At EU level, the Commission has set out measures to ensure that new EU initiatives avoid

regulatory complexity and fragmentation. The ‘simplicity by design’ principles outlined in its

Communication on a simpler, clearer and better enforced EU rulebook ( 27 ) are particularly

noteworthy. At the same time, the Commission continues to tackle duplications and

inconsistencies in the existing body of legislation, including through the Action Plan on Regulatory

Deep Cleaning. This dual-track approach, together with the underlying principles and measures,

also provides useful guidance for equally ambitious action at national, regional, and local level. In

2025, the Commission tabled ten omnibus and other proposals, bringing administrative cost

savings of EUR 15 billion annually and approximately EUR 6 billion in one-off cost savings.

Additionally, the proposal for an EU Inc. corporate legal framework which would provide

businesses with a unified set of rules across the EU calls on Member States to prioritise the

digitalisation and cross-border availability of key business procedures under the single digital

gateway (28).

Making the most of the single market

There has been some progress in reducing single market barriers and strengthening

institutional quality, though progress remains limited and uneven across Member States.

Progress in reducing single market barriers and ensuring effective competition remains limited;

some measures have been taken to strengthen sectoral regulation, reduce entry barriers and

improve coordination, for example in Italy and Spain. Late payments are distorting the Single

Market, hampering SMEs’ growth and eroding supply chains’ competitiveness by reducing access

to finance, and stifling innovation. Cyprus has made some advancement in improving the

governance of state-owned enterprises by adopting an action plan aligned with international

recommendations. In public procurement, despite several implemented measures, a number of,

Member States e.g. Poland and Bulgaria, continue to face challenges related to limited competition

and efficiency of procedures,in particular for smaller tenders where bidder participation remains

low. Some measures have been taken to improve the efficiency of the justice system, as part of the

recovery and resilience plans, for example in Italy, Spain and Greece, through organisational

reforms, improved digital capabilities and training.

Deepening the single market, including by reducing gold-plating of EU legislation, is a top

priority for the EU, and the European Semester has a role to play. This year’s CSR proposals

include more references to country-specific barriers to the single market, complementing existing

single market enforcement and monitoring instruments. The aim is to identify, based on available

27 A Simpler, Clearer and Better Enforced EU Rulebook, COM(2026) 380 final. 28 Regulation (EU) No 1024/2012.

15

evidence, concrete, country-specific obstacles with a cross-border dimension that affect market

entry, the free movement of goods and services, and the overall business environment. The

Commission will further deepen its analysis of single market barriers and gold-plating that increase

the regulatory burden and compliance costs for businesses and hamper intra-EU business

dynamics (29).

The 2026 CSRs are geared to lifting restrictions to the single market, strengthening the rule

of law, and ensuring an effective institutional framework. Regulatory restrictions on certain

professions and on services markets continue to create barriers to the cross-border provision of

services, for example in Luxembourg and Austria. Measures are also called for to simplify

regulatory frameworks, reduce gold-plating, and lower administrative burdens affecting market

entry and cross-border activity. Further action on regulatory simplification and reducing

compliance costs is called for in Bulgaria, Spain, Croatia, Slovakia, Austria, Germany, and Cyprus

among others. Ensuring a predictable and fair regulatory framework, strengthening anti-corruption

measures and fostering a dynamic and innovative business environment are key priorities for

Hungary, Bulgaria and Slovakia. In parallel, several Member States including Croatia, Cyprus,

Malta and Italy, are recommended to improve the effectiveness of justice systems, notably by

reducing case backlog and shortening the length of court proceedings.

The EU is taking action to further strengthen the single market. Examples include the One

Europe, One Market roadmap, which sets specific targets for legislative proposals, for example

the upcoming European Product Act to modernise product rules while ensuring stronger

compliance across borders. The forthcoming Fair Labour Mobility Package will include the Skills

Portability Initiative and a European Social Security Pass and will strengthen the European Labour

Authority to better enforce the rules. Further examples include the proposal for an EU Inc.

corporate legal framework, covering the entire lifecycle of a company, and the Digital Networks

Act, designed to modernise and harmonise telecommunications rules and strengthen Europe’s

digital resilience. The ongoing reform of the EU public procurement directives further simplifies

the legal framework for public procurement. Completing the trans-European transport network

(TEN-T) and its European Transport Corridors is essential to ensure the free movement of people

and goods within the single market, foster the EU's industrial competitiveness and enhance military

mobility.

Accelerating an affordable clean energy transition and decarbonisation

On decarbonisation, energy, environment and climate adaptation, progress has been uneven

but, in some cases, notable progress has been made in aligning with EU objectives. Positive

developments include accelerated renewable energy deployment, such as Ireland’s offshore wind

auctions and Lithuania’s solar capacity expansion. Heating decarbonisation has progressed; for

example, subsidies for installing fossil fuel boilers have been ended across the EU. The Dutch

29 Communication of the Commission on A Simpler, Clearer and Better Enforced EU Rulebook, 28 April 2026.

16

Energy Act enables more flexible grid use in the Netherlands, while sustainable agriculture

initiatives have begun addressing greenhouse gas emissions, pollution, biodiversity loss and

ecosystem degradation. In transport, electrification and alternative fuels are gaining traction, with

support for electric transport and Germany’s rail infrastructure investments. Positive steps on water

and resource management were taken, including Spain’s adoption of drought resilience plans,

Greece’s implementation of the water service providers’ reform, and Portugal’s adoption of a

circular economy action plan.

The 2026 CSRs aim to accelerate the clean energy transition to make energy more affordable,

enhance security, support competitiveness, and align with the 2030 climate and energy

targets. Member States in which fossil fuels still represent a significant part of the electricity

generation mix, for instance, Czechia, Bulgaria and Hungary, need to scale up clean energy,

particularly wind. For these and other Member States there is a need to accelerate and streamline

grid permitting procedures and to upgrade grid infrastructure including cross-border connections

and supporting the transition of regions highly dependent on fossil fuels. Several Member States

including Croatia, Malta and Portugal are encouraged to prioritise energy efficiency and phase out

fossil fuel subsidies that neither tackle energy poverty in a targeted way nor address genuine energy

security concerns, that hinder electrification and that are not crucial for industrial competitiveness.

Several Member States such as Germany, France, Spain, Portugal, Ireland, Cyprus and Latvia need

to invest in energy system flexibility, grid capacity, and energy storage. Rolling out smart meters

is an important prerequisite to fostering demand side flexibility and should be prioritised in several

countries, for example Croatia and Germany. Several Member States, including Slovakia, Greece

and Poland would benefit fromreducing the relatively high taxation of electricity compared with

fossil fuels, in order to incentivise electrification effectively, while France is encouraged to

accelerate electrification in high-emitting sectors. Support should be provided to regions that are

facing industrial transition challenges, including in Austria and Poland.

Transport decarbonisation requires electrification, including the roll-out of recharging

infrastructure, and a modal shift, in particular by strengthening public and rail transport. In

particular, coordinated action between the EU, Member States and industry is encouraged to

accelerate the deployment of truck charging infrastructure at locations along the two heavily used

TEN-T corridors of the North Sea-Baltic and Scandinavian-Mediterranean. Member States also

need to encourage and support the decarbonisation of manufacturing, in particular in energy-

intensive sectors. For example, Germany and Croatia are asked to improve permitting related to

clean industry facilities. Poland needs to decarbonise transport, Bulgaria is encouraged to promote

the roll-out of clean transport, and Romania is asked to increase public transport connectivity of

remote and rural areas.

Regarding water resilience and resource management, Member States including the Netherlands,

and Malta are called upon to improve water quality and prevent excessive water use. France is

encouraged to strengthen water management to address competing demands between water-

intensive sectors and safeguard water quality. Others, including Spain, Lithuania, Greece, and

17

Denmark are recommended to strengthen waste management and promote a circular economy.

Several Member States including Spain, Slovenia, Slovakia, and Cyprus are advised to implement

their climate adaptation measures, including nature-based solutions and strengthened governance

systems. It is recommended that Spain improve the management of its forests, while Portugal,

Malta and Romania need to increase the resilience of their infrastructure. In addition, social equity

must be addressed by taking further measures to tackle energy poverty and support vulnerable

households, for example in Slovakia and Bulgaria. Romania and Italy are encouraged to accelerate

investments in environmental infrastructure, in particular in the less developed regions.

Major EU initiatives strengthen climate resilience and support the energy transition to

preserve the competitiveness of the European economy across sectors. As part of the European

Grids Package (30), the Commission is addressing the most urgent energy infrastructure needs,

including interconnectors, via the Energy Highways initiative. The forthcoming European

Integrated Framework for Climate Resilience should support the ability of Member States to tackle

the growing impacts of climate change and strengthen the preparedness and risk management. The

Communication on Integrated Wildfire Risk Management (31) specifically focuses on wildfire

prevention, preparedness, responses and recovery. The Circular Economy Act, in line with the EU

Bioeconomy Strategy (32), will support industries in replacing virgin fossil materials with circular

and bio-based ones. Supporting the fisheries and aquaculture sectors through the Energy Transition

Partnership will be key to enhancing the sector‘s resilience. Building on the EU Strategy on Small

Modular Reactors (SMRs), interested Member States are encouraged to contribute to creating the

enabling conditions for SMRs development in the EU and facilitate deployment in the early 2030s.

Promoting skills, education and quality jobs

There has been some improvement in the functioning of labour markets and boosting human

capital development, but further action is needed to strengthen Europe’s competitiveness

and productivity. Progress has been made, for instance, in improving employment opportunities

by strengthening active labour market policies (ALMP) in some Member States. In Croatia, the

Job+ Programme supports labour market integration of groups in situations of vulnerability, and

Slovenia has adopted an effective framework for active employment policy measures. Incentives

to work have been strengthened by changes to the tax and benefit framework. For example, in

Belgium, the duration of unemployment benefits has been limited to two years for most jobseekers,

while strengthening ALMP and providing support to vulnerable groups. Vocational education and

training (VET) programmes have been expanded, for instance in Bulgaria and Spain. Initiatives to

boost STEM education and adult learning were launched, such as Finland’s digital continuous

learning initiatives for adults. Access to early childhood education and care services has been

improved in several Member States, also with the support of EU funds.

30 European Grids Package, COM(2025) 1005 final. 31 Communication on integrated wildfire risk management, COM(2026) 330 final. 32 Communication on A Strategic Framework for a Competitive and Sustainable EU Bioeconomy COM (2025) 960 final.

18

The 2026 CSRs call on Member States to promote quality employment, improve the

functioning of labour markets and foster skills development, including the development of

digital skills, through quality education and training, with a view to increasing productivity

and fostering a resilient social market economy. Improving educational outcomes and better

aligning people’s skills with labour market needs remain key priorities, also to address labour and

skills shortages which are particularly acute in strategic sectors such as cybersecurity, quantum,

artificial intelligence and semiconductors. For several Member States, it is key to boost skills levels,

for instance, by strengthening basic skills and tackling early school leaving (Spain), promoting

enrolment in STEM and improving the labour market relevance of training (France), and

expanding upskilling and reskilling opportunities for low-skilled and older adults (Estonia and

Latvia). Some Member States are called to improve their VET systems or leverage skills

intelligence tools to future-proof their education and training systems. Several Member States, for

example Greece, Sweden, Lithuania, Romania, Croatia and Slovenia, are encouraged to tackle

labour shortages, including by strengthening ALMP; supporting the labour market integration of

underrepresented groups, such as persons with disabilities, younger and older people, people with

a migrant background and Roma; or, where relevant, by better attracting and retaining talent from

outside the EU. Addressing labour market segmentation remains important in Poland and the

Netherlands. Expanding the provision of quality early childhood education and care, for example

across all regions in Austria, remains important to foster equal opportunities for children and

women’s participation in the labour market. The participation of older workers needs to be

enhanced for instance in Luxembourg and Germany, with a view to increasing the effective

retirement age. Social dialogue and collective bargaining, as recommended for instance to

Hungary and Italy remain key tools for addressing labour market challenges and fostering

economic and social resilience.

Various key initiatives at EU level aim to support Member States in fostering quality jobs

and skills development. The Quality Jobs Roadmap (33) and the forthcoming Quality Jobs Act

guide Member States in ensuring that quality employment can act as an enabler for a competitive

social market economy. As announced in the Union of Skills (34), the Commission will present a

European VET Strategy in 2026 to help VET systems respond to changing market needs. The

STEM Education Strategic Plan (35) reinforces this ambition by supporting participation in STEM

studies, especially among girls and women. The Council recommendation on human capital in the

EU ( 36 ) calls on Member States to strengthen basic skills as a solid foundation for skills

development, prioritise STEM at all levels of education, boost public and private investment and

make better use of skills intelligence, with a view to tackling skills shortages. Building also on the

Action Plan on Basic Skills37, the forthcoming Education Package will help struggling learners

improve basic skills, support schools and teachers, and boost cross-border school cooperation.

33 Quality Jobs Roadmap, COM(2025) 944 final. 34 Union of Skills, COM(2025) 90 final. 35 STEM Education Strategic Plan, COM(2025) 89 final. 36 Council Recommendation 6081/1/26. 37Action Plan on Basic Skills, COM(2025) 88 final.

19

Through the Digital Europe Programme (38), the EU is significantly investing in building advanced

digital skills in all Member States.

Social fairness

The implementation of the 2025 CSRs shows some progress in areas such as pensions and

healthcare, among others. Social protection and inclusion policies have progressed in several

areas, including the extension of coverage to all workers and self-employed people, pension

reforms to improve adequacy and sustainability, healthcare digitalisation, and investment in long-

term care. Adjustmentsto the minimum wage in Slovenia have improved income fairness, while

pension system changes in Belgium have strengthened sustainability and those in Croatia have

improved its adequacy, though further progress is often still needed.

The 2026 CSRs call on Member States to address existing and emerging challenges in the

area of social fairness, including as identified through the Social Convergence Framework

(see box 3). In several Member States, boosting social inclusion and reducing poverty requires

strongerpathways to the labour market as well as better outreach, targeting and adequacy of

minimum income schemes, including for older people. Improving access to social services is

equally essential, both to support those experiencing poverty and to prevent others from falling

into it. These services also play a key role in guiding people towards education, training, healthcare,

and other essential services, including energy. Several Member States, including Spain, Romania

and Greece, need to improve the effectiveness of social protection, for instance by revisiting its

coverage. Improving access to and affordability of healthcare and long-term care remains a priority

in, for example, Czechia, Estonia and Romania and in depopulating and rural regions of some

Member States. Addressing persistent access and affordability challenges while maintaining cost-

effectiveness and fiscal sustainability requires tackling workforce shortages and addressing

territorial disparities in several Member States, such as Spain and Portugal.

EU initiatives have established a comprehensive framework to improve social fairness,

support poverty reduction, and strengthen social inclusion across the EU. With the EU Anti-

Poverty Strategy (39), the Commission supports eradication of poverty in the EU by 2050 through

a comprehensive approach.The strategy is complemented by measures to strengthen the European

Child Guarantee (40) to break the cycle of child poverty. Through robust equality and non-

discrimination policies, the EU promotes social fairness and leaves no one behind, in line with the

Union of Equality Strategies (41).

38 Conclusions on European Competitiveness in the Digital Decade - Council Conclusions (5 December 2025). Adopted alongside

this Spring Package, the 2026 State of the Digital Decade report provides a comprehensive picture of the EU’s digitalisation,

identifies the structural gaps to be closed by 2030 and sets out horizontal and country-specific recommendations to guide reforms

and investments over the next programming period. 39 SWD(2026) 770 final. 40 SWD(2026) 772 final. 41 See European Commission, Union of Equality strategies: gender equality strategies (2020–2025 and 2026–2030), LGBTIQ+

equality strategies (2020–2025 and 2026–2030), EU anti-racism action plan 2020–2025, EU anti-racism strategy 2026-2030, EU

Roma strategic framework 2020–2030 and strategy for the rights of persons with disabilities 2021–2030.

20

Increasing the affordability of housing

To tackle the ongoing crisis in housing affordability, ambitious reforms at the appropriate

levels of government are crucial for increasing housing supply, streamlining administrative

procedures, and tackling capacity constraints in residential construction. There has been

progress in implementing the 2025 CSRs on housing, but it remains limited. Positive developments

include increasing housing construction in several Member States and tackling capacity constraints.

Some Member States have expanded in particular the supply of social and affordable housing, with

initiatives including Denmark’s comprehensive housing package, and Ireland’s plans to expand

social housing supply. However, significant challenges persist across Member States, including

the need to simplify and speed up planning and permitting procedures, severe housing shortages

particularly in urban areas and touristic regions, rising homelessness and declining affordability,

constraints on labour and educational mobility, and increasing inequalities.

Recognising the scale of the challenge and seeking to boost access to affordable, sustainable

and quality housing, including social housing, the Commission is proposing several

additional CSRs. Easing housing supply constraints requires reforms in many Member States to

simplify rules and procedures for example to facilitate and accelerate permitting, for instance in

the Netherlands and Germany. Action is also needed to bring public land into use, boost the

construction and renovation of affordable, energy-efficient and sustainable homes, and strengthen

coordination across various levels of governance, for instance in Poland. Improving affordability

also requires making taxation frameworks more effective, for example in Sweden, as well as

repurposing underutilised stock, for instance in Portugal. Social housing needs should be addressed

through adequate investments, for instance in Spain and Lithuania. Without decisive action,

housing shortages and inequalities will further undermine economic competitiveness and social

cohesion, in particular in regions and cities most acutely affected.

Coordinated EU-level action, with full regard for the subsidiarity principle, can play a

supporting role in addressing the housing crisis. The European Affordable Housing Plan (42),

adopted in December 2025, and related initiatives such as the European Strategy for Housing

Construction (43), the New European Bauhaus (44), the revision of State aid rules on housing and

the proposal for a Council Recommendation on fighting housing exclusion ( 45 ), provide a

framework for joint action. Additional initiatives and measures, including the forthcoming

Affordable Housing Act, a simplification package on housing in 2027, and a pan-European

investment platform involving major financial institutions, aim to scale up investment and address

market challenges such as the mismatch between housing supply and demand. Member States are

encouraged to implement ambitious and comprehensive reforms to enhance housing affordability,

including by facilitating construction and renovation, making full use of the data-sharing, mutual-

42 European Affordable Housing Plan, COM(2025) 1025 final. 43 The European Strategy for Housing Construction, COM(2025) 911 final. 44 New European Bauhaus, COM(2025) 1026 final. 45 Proposal for a Council Recommendation on fighting housing exclusion, COM(2026) 540 final.

21

learning and technical assistance opportunities available at EU level, including within the

European Housing Alliance. At least EUR 43 billion is mobilised under the current Multiannual

Financial Framework, to support affordable and sustainable housing efforts with an additional

EUR 3.3 billion in cohesion policy resources re-programmed towards this objective as part of the

mid-term review, complemented also by support from the Social Climate Fund notably for

vulnerable households and small businesses. Under the Strategy for Housing Construction (46), the

EU, Member States and industry are encouraged to continue working hand in hand to identify and

implement key investment and reform measures needed to scale-up the EU-wide offsite housing

construction industry.

Economic, social and territorial cohesion

The implementation of the 2025 CSRs on cohesion shows partial progress in reducing

territorial disparities and strengthening regional and local administration governance. Sub-

national governance reforms have advanced in some Member States, improving service delivery,

while local public services have been strengthened, also through further digitalisation. However,

persistent challenges, such as the still unequal access to infrastructures and services, further deepen

economic and social disparities across regions and between urban and rural areas. Insufficient

administrative capacity, insufficient coordination across administrative levels and slow digital

uptake in local governments further hinder efficient delivery of public services, which undermines

economic, social and territorial cohesion.

The 2026 CSRs focus on regional competitiveness, strengthening sub-national governance,

and ensuring access to key services. Sub-national governance in certain Member States would

benefit from better coordination across levels of government and from advancing the digitalisation

of public administration at local level. For instance, stronger coordination between central and

local administrations would be warranted in areas such as climate resilience and housing to ensure

effective implementation of policy actions for example in Poland, Spain and Czechia. Reducing

the urban-rural divide also demands better access to public services, for example in Ireland and

Lithuania, as well as improved connectivity of remote regions (e.g. Bulgaria). Finally, in the area

of innovation it is particularly important to take into account regional specificities (Croatia, the

Netherlands, Poland, Romania).

The EU is taking action to tackle key challenges specific to certain territories to ensure the

right to stay. The EU Agenda for Cities (47) is strengthening multilevel governance through more

regular dialogues with local authorities to better integrate their needs into EU policymaking, while

the Vision for Agriculture and Food (48) focuses on improving the living standards in rural areas.

Estonia, Latvia, Lithuania, Poland and Finland are recommended to address the unique socio-

economic, security and civil preparedness challenges faced by the regions on the EU’s external

46 The European Strategy for Housing Construction, COM(2025) 911 final. 47 An EU Agenda for Cities, COM(2025) 739 final. 48 A vision for Agriculture and Food, COM(2025) 75 final.

22

eastern border, in line with the Commission’s recently adopted Strategy for Eastern border regions

(49). The specific challenges and pressures affecting livelihoods and the socio-economic fabric in

outermost regions, as well as islands and coastal areas will be further addressed in dedicated

strategies and supported by the European Ocean Pact (50). The upcoming EU Sustainable Tourism

Strategy will focus on tackling unbalanced tourism, promoting sustainable practices and

strengthening the sector’s global competitiveness, encouraging action at national and sub-national

level. Finally, the Commission will also put forward a strategy to ensure that all Europeans have

the right to stay in their home region, focusing on the key challenges underlying the growing

demographic decline of some European regions.

Box 3: Analysis of upward social convergence in line with the Social Convergence

Framework

The Commission has assessed the existence of challenges to upward social convergence in

nine Member States in line with the Social Convergence Framework (SCF), which entails a

two-stage country-specific analysis of risks and challenges to upward social convergence (51).

In the first-stage analysis, presented in the 2026 Joint Employment Report (52), labour market,

skills and social policies were analysed for all Member States. A total of nine Member States

were identified as facing potential risks to upward social convergence. A second-stage analysis

for these nine countries was published on 21 April 2026 (53). This analysis examined in more

detail the available quantitative and qualitative evidence and the key factors driving the

challenges, taking into account policy developments. A major challenge in all Member States is

reducing poverty and social exclusion, in particular enhancing the effectiveness of social

transfers in reducing poverty. Many Member States are struggling with high shares of young

people not in employment, education or training, low levels of adult learning and basic digital

skills, and high rates of early school leaving. Further efforts are needed to better integrate

underrepresented groups into education and training, as well as the labour market. Overall, the

second-stage analysis identified challenges to upward social convergence in six Member States.

The analysis of upward social convergence points to cross-cutting challenges in all three

policy areas. While labour markets remain strong overall, the analysis highlights the need to

foster quality job creation and transitions, including by integrating inactive people into the

labour market more effectively. The analysis also points to further measures to boost quality

education and skills acquisition to address skills gaps and mismatches. At the same time, income

inequality and poverty risks require very close policy attention, also against the background of

demographic and fiscal challenges, while keeping to efficient, adequate and sustainable social

protection and inclusion systems.

49 Communication on the EU’s eastern regions bordering Russia, Belarus and Ukraine Strong regions for a safe Europe,

COM(2026) 82 final. 50 The European Ocean Pact - Oceans and fisheries - European Commission. 51 See Regulation (EU) 2024/1263, Article 3 and the underlying recital. 52 Joint Employment Report 2026, as adopted by the EPSCO Council on 9 March 2026. 53 SWD(2026)122 – Second-stage country analysis on social convergence in line with the Social Convergence Framework (SCF),

2026.

23

The findings of the social convergence analysis are reflected in the country reports and

inform the 2026 European Semester. This analysis has fed into the multilateral surveillance

reviews in the relevant committees of the Council.

Box 4: RRF closure: a turning point for EU funding, powered by reforms

The RRF, the centrepiece of the NextGenerationEU response to the COVID-19 pandemic,

mobilised a substantial volume of EU financing tied to complementary reforms and investments

that respond both to national-specific challenges and common EU priorities. With payments

linked to fulfilling milestones and targets that track progress with those reforms and investments,

the RRF design has reshaped the effectiveness and synergies of EU funding instruments, and

policy coordination, including notably under the European Semester.

Across the EU, the facility has supported ambitious reform agendas, often addressing long-

standing structural challenges in a wide variety of areas. These include:

• labour market and skills reforms, such as modernising employment protection

frameworks, strengthening active labour market policies, and improving education and

training systems to foster quality and inclusiveness and ensure that people have the skills

needed for the labour market (e.g. Italy, Greece, Luxembourg, Romania)

• pension and social protection reforms, to enhance sustainability and adequacy (e.g.

Belgium, Greece, Romania, Slovenia, Croatia)

• reforms strengthening health and long-term care systems to improve primary

healthcare and prevention, and address the needs of an ageing population (e.g. Slovakia,

Lithuania, Austria, Estonia)

• public administration and justice reforms, including the digitalisation of public

services and measures to improve judicial efficiency (e.g. Italy, Croatia, Slovakia,

Greece, Spain, Bulgaria, Romania)

• business environment reforms, such as reducing administrative burdens, improving

insolvency frameworks, and facilitating access to finance (e.g. Portugal, Cyprus, Latvia

• research and innovation reforms, such as strengthening the public research landscape,

revising R&D tax incentives for companies, and reforming R&I governance (e.g. Spain,

Croatia, Slovakia, Lithuania)

• tax and fiscal-structural reforms, broadening or shifting tax bases, tackling tax

evasion, and strengthening public financial management (e.g. Italy, Spain, Bulgaria)

• energy market, climate mitigation and environmentally friendly reforms, including

through REPowerEU, supporting the deployment of renewables, improving energy

efficiency, and reducing dependence on fossil fuels (e.g. Germany, Czechia, Poland,

Latvia, Finland, Luxembourg); and

• housing reforms, strengthening affordability by facilitating permitting procedures for

construction, creating the conditions for energy renovations and creating support

schemes for social housing (e.g. Poland, Slovenia, Ireland, Spain)

24

APPENDIX 1 – OVERVIEW OF THEMATIC AREAS COVERED IN THE COUNTRY-SPECIFIC RECOMMENDATIONS

25

APPENDIX 2 - PROGRESS ON CSR IMPLEMENTATION

The 2026 European Semester takes stock of the Member States’ policy action to address

structural challenges identified in the country-specific recommendations (CSRs) adopted in

2025. The 2026 assessment of CSRs implementation considers the policy action taken by the

Member States to date (54). It takes into account in particular the measures taken as part of the

implementation of the RRF, commitments undertaken in the RRPs as well as the medium-term

fiscal structural plans, depending on their degree of implementation. The assessment reflects the

current stage of implementation, rather than the level of progress that could be achieved assuming

full implementation of the plans (55). The 2026 CSR assessment covers the assessment of 2025

CSRs (annual assessment)(56).

Figure 1: Current level of implementation

of 2025 CSRs

Figure 2: Implementation of 2019-2025

CSRs: annual assessment in each

consecutive year

Note: The annual assessment in Figure 1 shows the progress recorded in the first year after

CSRs adoption. To be noted that 2021 CSRs only relate to fiscal policy.

Overall, there has been good progress in the implementation of CSRs adopted in 2025.

Member States have made at least “some progress” in 50% of the recommendations addressed to

them in July 2025 (Figure 1). This represents a broadly stable level compared to the annual

progress achieved in June 2025 on the CSRs adopted in October 2024. Considering the policy

54 Including policy action reported during the European Semester missions, in the CSR database, in the annual progress reports, as

well as in the RRF reporting (biannual reporting on progress in the implementation of milestones and targets and resulting from

the payment request assessment). 55 Measures foreseen in the annexes of the adopted Council Implementing Decisions on the approval of the assessment of the RRPs

or on the approval of the medium-term fiscal structural plans and which have not yet been adopted or implemented but are

considered as credibly announced in line with the CSR assessment methodology, warrant “limited progress”. 56 The 2025 CSRs provided, for each Member State, a consolidated set of recommendations on which further policy actions are

needed, based on a review of the outstanding stock of 2019-2024 CSRs, taking into consideration their coverage in the RRPs and

their continued relevance.

Full Implementation; 3%

Substantial Progress; 7%

Some Progress;

40%

Limited Progress;

42%

No Progress; 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2019 2020 2022 2023 2024 2025 Annual assessment in year +1

Average of annual assessments 2019 -2025

26

areas under which a significant number of Member States received a recommendation in 2025,

progress has been achieved in particular on private sector debt and insolvency framework, on

budgetary framework and fiscal governance, followed by digital connectivity, infrastructures and

market functioning and wage setting. By contrast, less progress has been made in addressing

recommendations on financial services and financial stability, quality of law making and state-

owned enterprises.

The results of the 2025 CSR assessment, together with those of previous years, is available on the

Commission website.

27

APPENDIX 3 – EU-WIDE PROGRESS ON SDG IMPLEMENTATION

Note: The figure above shows the pace at which the EU has progressed towards each of the 17 goals over the most

recent 5-or 6-year period of available data, avoiding 2020 as a base year due to COVID-related outliers. The method

for assessing indicators and aggregating them at the goal-level, as well as more detailed analyses are available on

the Eurostat website: Overview - Sustainable development indicators - Eurostat (europa.eu)

28

How has the EU progressed towards the SDGs?

The overview arrow visually summarises the EU progress towards each of the 17 goals. Over the

short-term period, the EU has made significant progress towards five SDGs: ‘Decent work and

economic growth’ (SDG 8), ‘Responsible consumption and production’ (SDG 12), ‘Reduced

inequalities’ (SDG 10), ‘Gender equality’ (SDG 5) and ‘Quality education’ (SDG 4). The EU has

also progressed towards nine other SDGs, but at a moderate pace. Among these goals, the EU has

performed best for ‘Industry, innovation and infrastructure’ (SDG 9) and ‘Zero hunger’ (SDG 2).

By contrast, no progress was observed for ‘Partnerships for the goals’ (SDG 17). Moreover, the

EU has moved away from the sustainable development objectives of ’Life on land’ (SDG 15)

and ’Clean water and sanitation’ (SDG 6) due to biodiversity loss, water scarcity and deteriorating

water quality. In summary, the EU has made progress towards most SDGs, at varying paces and

despite remaining challenges, while it has stagnated on SDG 17 and fallen back on SDG 6 and

SDG 15.

29

APPENDIX 4 - MIP - FINDINGS OF IN-DEPTH REVIEWS OF MACROECONOMIC

IMBALANCES IN MEMBER STATES

Imbalances or excessive imbalances have been identified in four out of the seven Member

States for which an in-depth review was carried out. The in-depth review analysis looked at the

gravity of the vulnerabilities, their recent evolution and prospects, and related policy responses,

which are the three criteria for the classification of macroeconomic imbalances.

The paragraphs below review the most relevant vulnerabilities at this juncture, with a focus

first on cross-country developments and then in the seven Member States subject to an in-

depth review this year.

Inflation has declined further across most of the euro area and the EU, but significant

inflation differentials persist in several Member States and increases in energy prices are

now contributing to a resurgence of inflation. While inflation slowed further in 2025 and early

2026, some countries, both within and outside the euro area, have continued to record markedly

above-average inflation. However, even after accounting for the fact that part of those differentials

reflects rises in indirect taxation, inflation divergences have widened, including where the

economic activity has been subdued. Looking ahead, the disinflation process appears increasingly

at risk, and a further widening of inflation differentials cannot be excluded. At the same time, unit

labour cost growth moderated in the past year, in some cases significantly, owing to slower wage

growth and amid limited productivity gains. It however remains elevated relative to peers in

several countries. Persistent divergences in costs and prices may undermine competitiveness,

particularly in countries that have already experienced larger cost and price competitiveness losses

and record more fragile external positions. Moreover, entrenched inflation differentials risk

weakening the effectiveness of the common monetary policy.

Current account positions improved in 2025, but concerns persist over large deficits, and

latest rises in energy price can worsen current accounts. Somewhat stronger exports growth,

together with falls in energy prices, helped in narrowing the large current account deficits in 2025.

Yet, some countries still have current account deficits significantly higher than what the

fundamentals of their economies would justify. In some of the Member States subject to an IDR,

large government deficits account for much of the economy’s external financing needs, while in

others domestic demand buoyancy is the main cause. Meanwhile, significant current account

surpluses have shrunk somewhat, even if remaining elevated, thanks to faster domestic demand

growth compared to the rest of the euro area. Looking ahead, higher energy prices could hamper

or even reverse improvements in external accounts. Trade growth is also expected to slow down

compared to 2025, limiting further gains in trade balances and making them more dependent on

shifts in domestic demand.

The more negative net international investment positions often improved further in 2025,

but by less than before and that progress may soon reverse as current account deficits keep

30

accumulating. Despite the significant current account deficits, most of those positions improved

further in 2025 on account of nominal GDP growth – even if those denominator effects were

somewhat milder than in earlier years – and accelerating capital transfers. However, if those very

large current account deficits remain, negative net international investment positions could worsen.

Large positive positions declined in 2025, largely reflecting adverse valuation effects but are set

to rise if large surpluses persist.

House prices accelerated further in 2025 after a small rebound in 2024. Demand has been

boosted by increases in household real income and more supportive financing conditions, while

supply has remained constrained or even shrunk in some areas. Overvaluation risks grew in various

countries. Dysfunctional rental markets have not changed much, and certain policies, including

taxation policies incentivising debt-financed home buying, continue fuelling demand in some

countries. House prices are expected to keep rising, as housing shortages are increasing amid slow

progress in addressing supply bottlenecks.

Borrowing by households and non-financial corporations has picked up with lower interest

rates, whereas high debt ratios declined less than in previous years. Denominator effects

became less significant on account of lower nominal GDP growth which led to more limited falls

in debt ratios than in earlier years. In the Member States with high private debt ratios, the

slowdown in deleveraging has been often more pronounced in the case of households. The recent

tightening of financing conditions may dampen borrowing and increase debt service burdens

especially where variable-rates loans are widespread.

Government debt ratios have evolved diversely, sometimes declining but often increasing

depending on budget balances, while interest rates are now increasing everywhere. High

government debt ratios decreased in one country subject to an in-depth review but edged up in

other cases. Lower growth weakened debt dynamics too. Looking forward, sizeable, even if

declining, large deficits are forecast to continue adding to debt ratios in a number of cases. In 2025,

borrowing conditions improved for euro area government debts, but long-term interest rates were

much unchanged for non-euro area Members, where borrowing in foreign currencies is significant

too. Since this March, however, government bond yields have risen across various maturities.

The banking sector has remained healthy. Capital ratios have increased slightly further in 2025.

Bank profitability has remained elevated despite the decreasing contribution of the net interest

income. Non-performing loans have been broadly stable and close to historical lows on aggregate,

with limited further reductions in Member States where they used to be elevated and some

marginal increases in some cases. At the same time, non-performing loans held by servicers

outside the banking sector remain large in some Member States and their workout remains slow.

Commercial real estate remains a source of vulnerability in some cases, but financing pressures

have eased. Banks continue to hold large exposures to domestic sovereign debt in some Member

States, which have increased further in some cases.

31

Table 1: MEMBER STATES CLASSIFICATION UNDER THE MIP

2025 outcomes 2026 outcomes

No imbalances CY, DE, EE EL, NL, SE

Imbalances EL, HU, IT, NL, SE, SK HU, IT, SK

Excessive

imbalances RO RO

p.m.: No IDR AT, BE, BG, CZ, DK, ES, FI, FR, HR, IE, LT,

LU, LV, MT, PL, PT, SI

AT, BE, BG, CY, CZ, DE, DK, EE, ES, FI,

FR, HR, IE, LT, LU, LV, MT, PL, PT, SI

Note: Member States with classification changed between 2025 and 2026 are marked in bold in both columns.

Member States no longer experiencing imbalances

Greece is no longer experiencing imbalances.Vulnerabilities related to government and external

debt have receded over recent years, supported by steady GDP growth, with budgetary surpluses

further contributing to decreases in government debt; banks’ non-performing loans have declined

and balance sheets have improved; the current account deficit remains sizeable but its favourable

financing mitigates external sustainability risks; Greece has implemented relevant reforms to

reduce its long-standing vulnerabilities. While remaining high, the government debt-to-GDP ratio

has continued to decrease due to prudent fiscal policy and GDP growth, which has also supported

an improvement of the negative net international investment position. Both government debt and

external debt ratios are expected to fall further. The current account deficit has remained elevated

and is not expected to improve this year, but EU financing and private non-debt-generating

financing are expected to cover a large share of it. The labour market has improved, with the

unemployment rate decreasing further. Over the past years, banks have cleaned up their balance

sheets. The workout of non-performing loans held by servicers outside the banking sector remains

slow though. Overall policy progress has been strong and addressing the main vulnerabilities, with

the government taking a broad range of measures to improve the business environment, the labour

market, and tax administration. Looking ahead, sticking to sound fiscal policies would help further

reductions in government debt and while structural challenges related to labour productivity

remain, the European Semester will provide the framework for monitoring progress in structural

reforms.

The Netherlands is no longer experiencing imbalances. Vulnerabilities related to high levels of

household debt, the housing market, and the large current account surplus have been present over

the years but have lessened recently. The large current account surplus dipped somewhat lately

32

and part of it is structural, as the Netherlands acts as a key European trade hub and hosts many

multinational enterprises. In parallel, from a savings-investment perspective, the fall in the surplus

reflects that domestic demand has been the main contributor to recent real GDP growth and

demand has grown faster than in the rest of the euro area, albeit from lower levels. The current

account surplus is not forecast to grow this year or next. House prices continue to grow visibly

amid reduced housing supply. Household debt as a share of GDP fell again in 2025, though more

slowly than before, as borrowing increased with lower interest rates. The household debt may

stabilise in the coming years, and the risks related to high household debt are partly mitigated by

the prevalence of fixed-rate mortgages. Some policy measures have been taken to increase housing

supply, and the latest government investment agenda, including in housing, could help reduce the

current account surplus over the medium term. Looking ahead, effectively increasing housing

supply and tackling tax incentives favouring debt-financed house buying could help dampen house

prices and reduce household debt in a lasting way while boosting domestic investment would help

further narrow the current account surplus. The European Semester will provide the framework

for monitoring progress on housing reforms.

Sweden is no longer experiencing imbalances. Vulnerabilities related to its real estate market and

high levels of private debt remain but their gravity has lessened recently. While the Swedish

economy is highly sensitive to interest rates due to the widespread use of variable-rate mortgages,

it proved resilient to the higher interest rates in 2022 and 2023, which caused house prices to drop.

Since then, house prices have been stable and seem less overvalued than before. The large

commercial real estate sector showed signs of improved refinancing capacity as interest rates eased

and capital market access improved. Household debt as a share of GDP, which had been falling

since the pandemic, levelled off in 2025 and is expected to stay steady. Going forward, housing

shortages, coupled with looser borrower requirements, could push house prices and household debt

up. Banks remain strong, profitable, and with low non-performing loans. Some measures have

recently been taken aimed at making the rental market more flexible, and the regulatory framework

for building permits was tweaked in late 2025. Looking ahead, effectively increasing housing

supply and tackling tax incentives favouring debt-financed house buying, together with judicious

use of macroprudential measures, would help further dampen house price growth and reduce

household debt in a lasting way. The European Semester will provide the framework for

monitoring progress on housing reforms.

Member States experiencing imbalances

Italy continues to experience imbalances. Vulnerabilities related to high government debt and

weak productivity growth, which have cross-border relevance, persist, and continued and effective

implementation of growth-enhancing reforms and investments, together with a prudent fiscal

stance, remains crucial to reduce those vulnerabilities. Government debt as a share of GDP fell

after the pandemic but increased in 2024 and again in 2025, on account of the slowdown in nominal

GDP growth, the lagged impact of the tax credits for housing renovations of earlier years, and the

33

still sizeable government deficits. The government debt ratio is expected to continue increasing in

2026 and 2027. Productivity has declined recently and is forecast to stagnate, limiting potential

GDP growth and hence hampering reductions in the government debt ratio. Banks have

significantly strengthened their asset quality and profitability and reduced their non-performing

loans, but the high sovereign-banks nexus is still a concern, as banks’ holdings of domestic

government debt as a share of their assets is high, especially for less significant institutions and

cooperative banks. The labour market has continued to improve, but the labour potential does not

seem to be fully exploited. Measures have been taken to address the long-standing vulnerabilities

but, despite the recent extensive reform action, significant productivity gains have yet to

materialise. Looking ahead, continued and effective implementation of growth-enhancing reforms

and investments, together with a prudent fiscal stance, remains crucial to improve productivity

growth and reduce the government debt-to-GDP ratio.

Hungary continues to experience imbalances. Vulnerabilities related to competitiveness,

government financing needs, and house prices persist, and policies have continued compounding

those vulnerabilities. Inflation and unit labour costs growth have been among the highest in the

EU despite stagnating economic activity. Price and cost pressures are expected to ease only

gradually, while remaining much higher than in the euro area and EU. Government deficits have

been elevated in the past years and are not forecast to improve. Government financing needs and

debt servicing costs remain high, although the government debt-to-GDP ratio has risen only

marginally thanks to the high nominal GDP growth in the context of still elevated inflation. Banks

continue to hold large sovereign exposures, partly reflecting tax incentives. House prices have

continued to increase strongly and risks of overvaluation have risen. The current account has

remained in surplus, but Hungary’s high reliance on energy imports makes it vulnerable to higher

and more volatile energy prices. Policies have not improved and have compounded some of the

vulnerabilities. Untargeted subsidies that add to price pressures and compound fiscal challenges

have even been stepped up, while extensive government subsidised lending strain public finances

and limit the effectiveness of monetary policy. Looking ahead, effectively overcoming those

policies would reduce vulnerabilities.

Slovakia continues to experience imbalances. Vulnerabilities related to the external and

government balances, competitiveness, the housing market, and household debt persist, with policy

action remaining limited. While the current account deficit narrowed in 2025 thanks to lower

energy prices and stronger exports, it is expected to deteriorate in 2026 as the external context

worsens. The government deficit edged down in 2025 but remains large and weighing on external

balances; moreover, it is forecast to be largely unchanged in 2026 and to rise in 2027 assuming

unchanged policies, pushing government debt higher. Inflation was well above the euro area in

2025, partly due to VAT rate increases, and core inflation is forecast to stay among the highest in

the euro area in 2026. Fast-rising unit labour costs have further weakened competitiveness and are

still expected to grow relatively fast in 2026. House prices surged in 2025 amid lower mortgage

rates and are likely to keep rising briskly due to constrained supply. Household borrowing grew

34

too with lower interest rates and higher incomes. Policy progress has been limited. Looking ahead,

effectively addressing key issues in labour taxation, competitiveness, housing supply, and fiscal

policy would reduce vulnerabilities.

Member States experiencing excessive imbalances

Romania continues to experience excessive imbalances. Vulnerabilities related to fiscal and

current account deficits have diminished somewhat recently but remain very significant, while cost

competitiveness continues deteriorating albeit less than before. The government deficit fell in

2025 as result of marked consolidation efforts; a further fall of the deficit is expected for 2026 and

2027, but the deficit would still remain large. The bank-sovereign nexus continues to be significant

as banks’ holdings of domestic government bonds as a share of total assets are the largest in the

EU and increased in 2025. The current account deficit improved only marginally in 2025 and is

forecast to remain large even if declining somewhat more this year. Unit labour costs slowed down

markedly in 2025 after very strong growth in earlier years, but are expected to still grow faster

than in most of the EU. Core inflation was the highest in the EU in recent years – with increases

in VAT rates in 2025 only explaining part of it and is expected to remain high. Policy progress

was significant in 2025, especially on reducing the budget deficit thanks to a two-year freeze of

government wages and pensions, and increases in VAT rates and other taxes. Looking ahead,

without further vigorous fiscal consolidation, complemented by prudent income policies and

effective structural reforms, Romania remains exposed to rising interest rates and changes in

investor confidence.

35

APPENDIX 5 - FISCAL SURVEILLANCE UNDER THE REFORMED STABILITY AND

GROWTH PACT

Assessment by Member State (57)

The reformed Economic Governance framework has now reached a steady state of implementation.

By 2025, all Member States had submitted their medium-term fiscal-structural plans (henceforth,

medium-term plans or MTPs). In 2026, following the formation of new governments, Ireland and

the Netherlands have submitted new MTPs.

The Annual Progress Reports (APRs) submitted by Member States at the end of April (58) take

stock of the progress made in the implementation of these medium-term plans and the respective

Council recommendations. Together with the Commission Spring 2026 Forecast, and outturn data

for 2024 and 2025 provided by Eurostat, the APRs provide key inputs for the assessment of

Member States’ compliance with the recommended fiscal path and, where relevant, for the

assessment of the implementation of reforms and investments underpinning an extension of the

fiscal adjustment period (59).

Table 2 Overview of Member States’ compliance with the recommended net expenditure growth rates

2026

Projected

compliance

At risk of

non-compliance

At risk of

material non-compliance

2025

Compliance

BE*, AT*, PL*, RO*,

SK*, FI*, CZ, DK, DE,

EE, EL, FR*C, LV

SEC

FR*,A, ES HU*, SEA

Non-compliance IT* PT LT, SI

Material non-compliance IE LU, NL MT**, BG, HR, CY

*Member States in EDP. **For Malta, the Commission recommends to the Council the abrogation of the decision

establishing an excessive deficit. Member States not in EDP for which, in 2025, the government deficit was

below 3% of GDP and the debt ratio below 60% of GDP, or the government balance was close to balance or in

surplus (60). A2026 assessment based on the annual growth rate of net expenditure. C2026 assessment based on the

cumulative growth rate of net expenditure.

Notes: Where net expenditure growth is higher than recommended (i.e. positive deviations), the size of the

deviation is assessed in relation to the thresholds of 0.3% of GDP in annual terms and 0.6% of GDP in cumulative

terms. A positive deviation below one of these thresholds entails an assessment of (a risk of) non-compliance,

while a deviation above one of these thresholds entails an assessment of (a risk of) material non-compliance. For

Member States for which the national escape clause for defence has been activated, the assessment takes into

57 See also Box 5 at the end of this Appendix. 58 The 2026 Annual Progress Reports are available on: https://economy-finance.ec.europa.eu/economic-and-fiscal-

governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en. Hungary has to date not yet submitted its APR. 59 This is relevant for Belgium, Germany, Spain, France, Italy, Austria, Romania and Finland. 60 A fiscal position ‘close to balance’ is defined as a general government deficit not exceeding 0.5% of GDP, according to recital

14 in Council Regulation (EU) 2024/1264.

36

account the corresponding flexibility and is based only on net expenditure growth in cumulative terms. For Ireland,

the Netherlands and Finland, the assessment of 2026 is carried out against the latest recommendations, while 2025

is assessed against their previous recommendations.

Member States currently under EDP

The Commission has assessed effective action for 2025 on the basis of outturn data. For 2026, the

assessment is based on the Commission Spring 2026 Forecast and it should be considered as

preliminary, with a reassessment to take place in autumn 2026 and in spring 2027 based on outturn

data. A stepping-up of the excessive deficit procedure in the absence of outturn data would only

be considered in particularly serious cases of non-compliance. A Member State that adheres to the

corrective path should be considered as having taken effective action. When the net expenditure

growth deviates from the corrective path, the Commission will carry out an overall assessment.

Belgium - The net expenditure growth in 2025 is above the ceilings recommended by the Council.

However, the corresponding cumulated deviation is within the flexibility provided by the national

escape clause, taking into account the increase in defence spending. In 2026, both the annual and

the cumulative growth rates of net expenditure are projected to be below the recommended ceilings.

Therefore, after considering the flexibility provided by the national escape clause, Belgium is

assessed to be compliant with the recommended maximum growth rate of net expenditure in

2025 and projected to be compliant in 2026. At this stage, the Commission assesses Belgium

as having taken effective action. As a result, the EDP is held in abeyance.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. However, some reforms

experience a delay in implementation. Namely, the adoption of the pension reform by the

Parliament, that was due in Q4-2025, is now expected in 2026. The tax reforms, due in Q1-2026,

have been partly implemented and the remaining parts are expected to be finalized by July 2026.

The two reforms to improve the budgetary coordination between different levels of government,

due in Q4-2025, have been largely agreed at government level and now need to be legislated,

which is expected to be completed by the end of 2026. The Commission considers that, overall,

Belgium has complied with its commitments in a satisfactory manner.

France - The net expenditure growth in 2025 is below the ceilings recommended by the Council

both in annual and cumulative terms. In 2026, the annual net expenditure growth is above the

ceiling recommended by the Council whereas the cumulative net expenditure growth is below the

recommended ceiling. Therefore, France is assessed to be compliant with the maximum growth

rate of net expenditure in 2025. In 2026, France is projected to be at risk of non-compliance

with the recommended annual growth rate of net expenditure in 2026, while it is projected

to be compliant with the cumulative growth rate. At this stage, the Commission assesses

France as having taken effective action. As a result, the EDP is held in abeyance. At the same

37

time, on current projections, France may fall short of delivering effective action in 2026, which

could then require a stepping up of the EDP. Hence, the Commission recommends to the Council

to invite France to ensure that net expenditure respects the corrective path.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. However, the recasting

of the exemptions of social security contributions around the minimum salary has yielded lower

savings than committed. The Commission considers that, overall, France has complied with

its commitments in a satisfactory manner. Looking ahead, the 2023 pension reform has been

suspended until January 2028.

Italy - The net expenditure growth in 2025 is above the ceilings recommended by the Council both

in annual and cumulative terms, although only marginally above in cumulative terms. The net

expenditure growth in 2026 is projected to be below the ceilings recommended by the Council

both in annual and cumulative terms. Therefore, Italy is assessed to be non-compliant with the

recommended maximum growth rate of net expenditure in 2025, but it is projected to be

compliant in 2026. The deviation in 2025 requires an overall assessment. Taking account of the

decline in the nominal deficit, the projected correction of the excessive deficit situation as of 2026,

and the small size of the deviation in 2025, the Commission considers Italy as having taken

effective action. As a result, the EDP is held in abeyance. At the same time, the Commission

recommends to the Council to invite Italy to ensure that net expenditure respects the corrective

path.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. With regard to the key

step due by Q4-2025 related to the increase in public spending on research and development

(R&D), measured by R&D expenditure in GERD terms as a share of GDP, the latest available

Eurostat statistics refer to 2024. Nevertheless, preliminary estimates provided by the Italian

authorities indicate that R&D expenditure in GERD terms is expected to have reached 0.59% of

GDP in 2025, suggesting that Italy appears to be on track with the target. The Commission

considers that, overall, Italy has complied with its commitments in a satisfactory manner.

Hungary - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. However, the corresponding cumulated deviation is within

the flexibility provided by the national escape clause, taking into account the increase in defence

spending. In 2026, both the annual and the cumulative growth rates of net expenditure are projected

to be above the recommended ceilings. The corresponding cumulated deviation for 2026 is

projected to remain above 0.6% of GDP (strong presumption of no effective action) after taking

into account the flexibility for higher defence spending provided for by the national escape clause.

Therefore, after considering the flexibility provided by the national escape clause, Hungary

38

is assessed to be compliant with the recommended maximum growth rate of net expenditure

in 2025, whereas it is projected to be at risk of material non-compliance in 2026. At this stage,

the Commission assesses Hungary as having taken effective action in 2025. As a result, the

EDP is held in abeyance. At the same time, the projected risk of material non-compliance in 2026

would entail a strong presumption of no effective action and could require a stepping up of the

EDP. Hence, the Commission recommends to the Council to invite Hungary to take action to

control net expenditure so that it respects the corrective path. Furthermore, there is a clear risk

that Hungary will not correct the excessive deficit by 2026 (61), which is the final year of the

corrective path. Therefore, there will be a need for the Commission to recommend to the Council

to adopt a revised recommendation under Article 126(7) to establish a corrective path for the

subsequent years (62).The Commission will monitor this situation closely and reassess the situation

in autumn.

Austria - The net expenditure growth in 2025 is below the ceilings recommended by the Council.

Similarly, in 2026, net expenditure growth is projected to be below the ceilings recommended by

the Council both in annual and cumulative terms. Therefore, Austria is assessed to be compliant

with the recommended maximum growth rate of net expenditure in 2025, and it is projected

to be compliant in 2026. At this stage, the Commission assesses Austria as having taken

effective action. As a result, the EDP is held in abeyance.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. The Commission

considers that, overall, Austria has complied with its commitments in a satisfactory manner.

Malta – Malta successfully reduced its general government deficit to below 3% of GDP in 2025,

in advance of the deadline that the Council had established. Based on the Commission Spring 2026

Forecast, the deficit is projected to remain below 3% of GDP also in 2026 and 2027. Therefore,

the Commission is today recommending to the Council to adopt a decision under Article

126(12) to abrogate the Council decision of 26 July 2024 on the existence of an excessive

deficit in Malta.

At the same time, the Commission notes that the Council recommendation of 21 January 2025 that

endorsed the medium-term plan of Malta continues to apply. Compared to the latter

recommendation, the annual growth rate of net expenditure in 2025 was below the recommended

ceiling, whereas it was above in cumulative terms, with the deviation above 0.6% of GDP. In 2026,

the net expenditure growth is projected to be above the ceilings recommended by the Council both

in annual and cumulative terms with the corresponding deviation in cumulative terms projected to

61 Based on data provided by Eurostat, Hungary’s general government deficit decreased from 5.1% of GDP in 2024 to 4.7% of

GDP in 2025. Based on policy measures known by the cut-off date of the forecast, the Commission Spring 2026 Forecast projects

a deficit of 6.2% of GDP in 2026 and 5.8% of GDP in 2027. 62 On 1 June 2026, Hungary informed the Commission about its intention to submit a revised national medium-term fiscal-structural

plan.

39

be above 0.6% of GDP (63). Therefore, Malta is assessed to be materially non-compliant with the

recommended maximum growth rate of net expenditure in 2025 and projected to be at risk of

material non-compliance in 2026. Hence, the Commission recommends to the Council to invite

Malta to take action to control net expenditure so that it respects the recommended maximum

growth rates.

Poland - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. However, the corresponding cumulated deviation is within

the flexibility provided by the national escape clause, taking into account the increase in defence

spending. In 2026, the annual growth rate of net expenditure is projected to be below the

recommended ceiling, whereas cumulative net expenditure growth is projected to be above the

recommended ceiling. However, the cumulated deviation is projected to be within the flexibility

provided by the national escape clause based on current projections for defence spending.

Therefore, after considering the flexibility provided by the national escape clause, Poland is

assessed to be compliant with the recommended maximum growth rate of net expenditure in

2025, and it is projected to be compliant in 2026. At this stage, the Commission assesses

Poland as having taken effective action. As a result, the EDP is held in abeyance.

Romania - The net expenditure growth in 2025 is below the ceilings recommended by the Council,

thanks to the large fiscal policy packages adopted in the second half of 2025. Similarly, in 2026,

net expenditure growth is projected to be below the ceilings recommended by the Council both in

annual and cumulative terms. Therefore, Romania is assessed to be compliant with the

recommended maximum growth rate of net expenditure in 2025, and it is projected to be

compliant in 2026. At this stage, the Commission assesses Romania as having taken effective

action. As a result, the EDP is held in abeyance. At the same time, the Commission stresses that

the fiscal situation in Romania remains fragile with the largest 2025 deficit ratio in the Union and

where there are serious implementation risks which require a strong and persistent focus on fiscal

adjustment in 2026 and subsequent years.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. Preparatory work on the

reform of the public sector remuneration system is ongoing at technical level, and a new Law is

expected to be adopted in the course of the summer 2026. Some further measures need to be taken

in the field of tax administration, in particular with a view to reducing Romania’s very high VAT

compliance gap. Further work is also ongoing on the property taxation reform, including the

development of the IT system for automated property assessment, the operationalisation of the

63 The decrease in the deficit in 2025 reflects high revenue growth, including from corporate and indirect taxation, mainly driven

by the expansion of nominal GDP and tax bases, as well as significant tax windfalls. On the other hand, notwithstanding the non-

repetition of a sizeable capital transfer granted to the national airline company in 2024, government expenditure continued to

increase significantly, with substantial increases in the government’s wage bill and intermediate consumption, as well as a one-off

expenditure arising from a court decision.

40

specialised structure for monitoring public expenditure systems, and the business financing reform.

The Commission considers that, overall, Romania complied with its commitments in a

satisfactory manner.

Slovakia - The net expenditure growth in 2025 is below the ceilings recommended by the Council

in both annual and cumulative terms. In 2026, the annual growth rate of net expenditure is

projected to be above the recommended ceiling, whereas the cumulative one is projected below.

Therefore, after considering the flexibility provided by the national escape clause, Slovakia is

assessed to be compliant with the recommended maximum growth rate of net expenditure in

2025, and it is projected to be compliant in 2026. At this stage, the Commission assesses

Slovakia as having taken effective action. As a result, the EDP is held in abeyance.

Finland - Compliance with the net expenditure growth in 2025 is assessed based on the Council

recommendation of 21 January 2025, whereas for 2026 the relevant Council recommendation is

the one of 20 January 2026. For Finland, the net expenditure growth in 2025 is below the ceilings

recommended by the Council in both annual and cumulative terms. Differently, the net expenditure

growth in 2026 is projected to be above the ceilings recommended by the Council both in annual

and cumulative terms. However, the cumulated deviation is within the flexibility provided by the

national escape clause based on current projections for defence spending. Therefore, after

considering the flexibility provided by the national escape clause, Finland is assessed to be

compliant with the recommended maximum growth rate of net expenditure in 2025, and it

is projected to be compliant in 2026. At this stage, the Commission assesses Finland as having

taken effective action. As a result, the EDP is held in abeyance.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seem to be broadly on track. As regards the correction

of deficits of the wellbeing services counties, although expenditure growth has moderated, the

accumulated deficits of some counties are considered too large to be corrected by the end of 2026

without jeopardising service provision. The government has therefore presented a proposal to

extend the deadline to the end of 2029 for those regions with credible plans to address the deficit.

The Commission considers that, overall, Finland has complied with its commitments in a

satisfactory manner.

Other Member States

Bulgaria - The government deficit in Bulgaria exceeded the reference value of 3% of GDP in

2025, and the Commission projects the deficit in 2026 at 4.1%. Therefore, Bulgaria has been

included in the report under Article 126(3) TFEU assessing compliance with the deficit criterion.

In particular, while the deficit was below 3% of GDP in 2025 when accounting for the increase in

defence expenditure since 2024 under the National Escape Clause for defence, it is projected to

41

exceed the 3% of GDP reference value in 2026 when accounting for this increase, based on the

Commission Spring 2026 Forecast. Taking into account the Opinion of the Economic and

Financial Committee on that report, the Commission will consider proposing to open an

excessive deficit procedure for Bulgaria.

For Bulgaria, the net expenditure growth in 2025 is above the ceilings recommended by the

Council. The corresponding cumulated deviation remains above 0.6% of GDP after taking into

account the flexibility for higher defence spending provided for by the national escape clause. In

2026, the growth rate of net expenditure is projected to be above the recommended ceiling both in

annual and cumulative terms. The corresponding cumulated deviation is projected to remain above

0.6% of GDP after taking into account the flexibility for higher defence spending provided for by

the national escape clause. Therefore, after considering the flexibility provided by the national

escape clause, Bulgaria is assessed to be materially non-compliant with the recommended

maximum growth rate of net expenditure in 2025 and is projected to be at risk of material

non-compliance in 2026. Hence, the Commission recommends to the Council to invite Bulgaria

to adhere to the maximum growth rates of net expenditure that the Commission assumes will be

recommended by the Council, with a view to bringing an end to the situation of an excessive deficit.

Czechia - The annual net expenditure growth in 2025 is above the ceiling recommended by the

Council, whereas the cumulative net expenditure growth is below the recommended ceiling. In

2026, the annual net expenditure growth is projected to be above the ceiling recommended by the

Council whereas the cumulative net expenditure growth is projected below the recommended

ceiling, with a deviation of 0.1% of GDP in cumulative terms. However, the projected cumulated

deviation is within the flexibility of the national escape clause based on current projections for

defence spending. Therefore, after considering the flexibility provided by the national escape

clause, Czechia is assessed to be compliant with the recommended maximum growth rate of

net expenditure in 2025 and is projected to be compliant in 2026 (64).

Denmark - The annual net expenditure growth in 2025 is above the ceiling recommended by the

Council, whereas the cumulative net expenditure growth is below the recommended ceiling. In

2026, the annual net expenditure growth is projected to be above the ceiling recommended by the

Council whereas the cumulative net expenditure growth is projected below the recommended

ceiling. Therefore, after considering the flexibility provided by the national escape clause,

Denmark is assessed to be compliant with the recommended maximum growth rate of net

expenditure in 2025, and it is projected to be compliant in 2026.

Germany - The net expenditure growth in 2025 is below the ceilings recommended by the Council.

The net expenditure growth in 2026 is projected to be above the ceilings recommended by the

Council both in annual and cumulative terms. However, the projected deviation in cumulative

terms in 2026 is within the flexibility provided by the national escape clause based on current

64 On 12 May 2026, Czechia informed the Commission about its intention to submit a revised national medium-term fiscal-

structural plan.

42

projections for defence spending. Therefore, after considering the flexibility provided by the

national escape clause, Germany is assessed to be compliant with the recommended

maximum growth rate of net expenditure in 2025, and it is projected to be compliant in 2026.

Due to the planned general government deficit above the 3% of GDP deficit reference value in

2026, Germany has been assessed in the report under Article 126(3) TFEU. In light of the

assessment in that report, the Commission is of the view that there is no case to open an excessive

deficit procedure for Germany. Fiscal developments in Germany will be reassessed in autumn

2026.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. The Commission

considers that, overall, Germany has complied with its commitments in a satisfactory

manner.

Estonia - The net expenditure growth in 2025 is below the ceilings recommended by the Council

both in annual and cumulative terms. However, the net expenditure growth in 2026 is projected to

be above the ceilings recommended by the Council both in annual and cumulative terms. Although

most of the increase in defence spending in Estonia took place in previous years, the projected

deviation in cumulative terms in 2026 is within the flexibility provided by the national escape

clause based on current projections for defence spending. Therefore, after considering the

flexibility provided by the national escape clause, Estonia is assessed to be compliant with

the recommended maximum growth rate of net expenditure in 2025, and it is projected to be

compliant in 2026.

Due to the planned general government deficit above the 3% of GDP deficit reference value in

2026, Estonia has been assessed in the report under Article 126(3) TFEU. In light of the assessment

in that report, the Commission is of the view that there is no case to open an excessive deficit

procedure for Estonia. Fiscal developments in Estonia will be reassessed in autumn 2026.

Ireland - Compliance with the net expenditure growth in 2025 is assessed based on the Council

recommendation of 21 January 2025, whereas for 2026 the relevant Council recommendation is

the one of 10 March 2026. The annual net expenditure growth in 2025 is above the ceiling

recommended by the Council on 21 January 2025, and the corresponding deviation is marginally

above 0.3% of GDP, while the cumulative net expenditure growth rate is below the recommended

ceiling. In 2026, both the annual and cumulative growth rates of net expenditure are projected to

be below the ceilings recommended by the Council in its recommendation of 10 March 2026. At

the same time, the Commission notes that the budgetary position in 2025 is in surplus and projected

to be in surplus also in 2026. Therefore, Ireland is deemed to be compliant with the budgetary

policy obligations of the Stability and Growth Pact in 2025 and it is projected to be compliant

in 2026. Hence, the Commission recommends to the Council to invite Ireland to adhere to the

maximum growth rates of net expenditure recommended by the Council on 10 March 2026.

43

Greece - The net expenditure growth in 2025 is below the ceilings recommended by the Council

both in annual and cumulative terms. Meanwhile, net expenditure growth in 2026 is projected to

be above the ceilings recommended by the Council both in annual and cumulative terms. However,

the projected deviation in cumulative terms in 2026 is within the flexibility provided by the

national escape clause based on current projections for defence spending. Therefore, after

considering the flexibility provided by the national escape clause, Greece is assessed to be

compliant with the recommended maximum growth rate of net expenditure in 2025, and it

is projected to remain compliant in 2026.

Spain - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. However, the cumulated deviation is within the flexibility

provided by the national escape clause65 based on current estimates for defence spending. The net

expenditure growth in 2026 is projected to be above the ceilings recommended by the Council

both in annual and cumulative terms. The corresponding cumulated deviation reduces to below the

0.6% of GDP threshold after taking into account the flexibility for higher defence spending

provided for by the national escape clause. Therefore, after considering the flexibility provided

by the national escape clause, Spain is assessed to be compliant with the maximum growth

rate of net expenditure in 2025 and projected to be at risk of non-compliance in 2026. Hence,

the Commission recommends to the Council to invite Spain to ensure that net expenditure respects

the recommended maximum growth rates.

When it comes to the set of reforms and investments underpinning the extension of the adjustment

period, the Commission finds that the implementation of the key steps of these reforms and

investments that were due by 30 April 2026 seems to be broadly on track. The tax reform is still

being assessed and the tax benefits reform, along with two steps related to the digital

transformation of education will be assessed under the last payment of the RRP. As regards the

measures to improve the management of temporary disability, partnership agreements with the

National Social Security Institute were signed by most regions whereas the agreements with

mutual societies have only been signed by three regions and two autonomous cities. Regarding the

homologation of diplomas, a ministerial order has been adopted and put in place setting

instructions for the management of homologation and equivalence procedures for foreign

university qualifications. The Commission considers that, overall, Spain has complied with its

commitments in a satisfactory manner.

Croatia - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. The corresponding cumulated deviation remains above 0.6%

of GDP after taking into account the flexibility for higher defence spending provided for by the

65 For Spain, on 22 May 2026 the Commission has adopted a recommendation to the Council to activate the national escape clause

for defence, which is now pending adoption by the Council. The assessment of compliance for Spain assumes that the Council will

activate the national escape clause.

44

national escape clause. Similarly, the net expenditure growth in 2026 is projected to be above the

ceilings recommended by the Council both in annual and cumulative terms. The corresponding

cumulated deviation is projected to remain above that threshold after taking into account the

flexibility for higher defence spending provided for by the national escape clause. Therefore, after

considering the flexibility provided by the national escape clause, Croatia is assessed to be

materially non-compliant with the recommended maximum growth rate of net expenditure

in 2025, and it is projected to be at risk of material non-compliance in 2026. Hence, the

Commission recommends to the Council to invite Croatia to take action to control net expenditure

so that it respects the recommended maximum growth rates. At the same time, the Commission

notes that, for Croatia,the public debt ratio is below the 60% of GDP reference value in 2025, and

the general government deficit and public debt are projected below 3% and 60% of GDP

respectively in 2026.

Cyprus - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. The corresponding deviations are above 0.3% of GDP and

0.6% of GDP respectively. Similarly, the net expenditure growth in 2026 is projected to be above

the ceilings recommended by the Council both in annual and cumulative terms, and the

corresponding deviations are above 0.3% of GDP and 0.6% of GDP respectively. At the same time,

the Commission notes that the budgetary position in 2025 is in surplus and projected to be in

surplus also in 2026. Therefore, Cyprus is deemed to be compliant with the budgetary policy

obligations of the Stability and Growth Pact both in 2025 and 2026. However, net expenditure

growth is projected to be above the recommended ceilings. Hence, the Commission recommends

to the Council to invite Cyprus to ensure that net expenditure respects the recommended maximum

growth rates.

Latvia - The net expenditure growth in 2025 is below the ceilings recommended by the Council

in both annual and cumulative terms. In 2026, the annual net expenditure growth is above the

ceiling recommended by the Council, whereas the cumulative net expenditure growth is below the

recommended ceiling. Therefore, after considering the flexibility provided by the national

escape clause, Latvia is assessed to be compliant with the recommended maximum growth

rate of net expenditure in 2025, and it is projected to be compliant in 2026.

Due to the planned general government deficit above the 3% of GDP deficit reference value in

2026, Latvia has been assessed in the report under Article 126(3) TFEU.In light of the assessment

in that report, the Commission is of the view that, taking into account all the relevant factors as

appropriate, the deficit criterion is fulfilled by Latvia. Fiscal developments in Latvia will be

reassessed in autumn 2026.

Lithuania - The net expenditure growth in 2025 is above the ceilings recommended by the Council.

The corresponding cumulated deviation reduces to below 0.6% of GDP after taking into account

the flexibility for higher defence spending provided for by the national escape clause. Similarly,

the net expenditure growth in 2026 is projected to be above the ceilings recommended by the

45

Council both in annual and cumulative terms. The corresponding cumulated deviation in 2026 is

projected to remain above 0.6% of GDP after taking into account the flexibility for higher defence

spending provided for by the national escape clause. Therefore, after considering the flexibility

provided by the national escape clause, Lithuania is assessed to be non-compliant with the

recommended maximum growth rate of net expenditure in 2025, and it is projected to be at

risk of material non-compliance in 2026. Therefore, the Commission recommends to the Council

to invite Lithuania to take action to control net expenditure so that it respects the maximum growth

rates. At the same time, the Commission notes thatthe general government deficit and public debt

ratios in Lithuania are below the 3% and 60% of GDP in 2025 and projected to be so also in 2026.

Luxembourg - The net expenditure growth in 2025 is above the ceilings recommended by the

Council in both annual and cumulative terms, and the corresponding deviations are above 0.3% of

GDP and 0.6% of GDP respectively. In 2026, the annual growth rate of net expenditure is projected

to be below the recommended ceiling, whereas the cumulative one is projected above, with a

corresponding deviation of less than 0.1% of GDP in cumulative terms. Therefore, Luxembourg

is assessed to be materially non-compliant with the maximum growth rate of net expenditure

in 2025 and projected to be at risk of non-compliance in 2026 due to a deviation in cumulative

terms of less than 0.1% of GDP. Hence, the Commission recommends to the Council to invite

Luxembourg to take action to control net expenditure so that it respects the recommended

maximum growth rates. At the same time, the Commission notes that the general government

deficit and public debt ratios in Luxembourg are below the 3% and 60% of GDP ratios in 2025

and projected to be so also in 2026.

The Netherlands -Compliance with the net expenditure growth in 2025 is assessed on the basis

of the Council recommendation of 21 January 2025. For 2026, the recommendation which has

been used for the present assessment is the one adopted today by the Commission, pending

adoption by the Council. In 2025, both the annual and cumulative net expenditure growth rates of

the Netherlands are above the ceilings recommended by the Council on 21 January 2025, and the

corresponding deviations are above 0.3% of GDP and 0.6% of GDP respectively. In 2026, the

growth rate of net expenditure is projected to be above the ceiling in the recommendation for a

Council recommendation endorsing the revised medium-term plan of the Netherlands, adopted

today by the Commission. Therefore, the Netherlands is assessed to be materially non-

compliant with the recommended maximum growth rate of net expenditure in 2025, and it

is projected to be at risk of non-compliance in 2026. Hence, the Commission recommends to

the Council to invite the Netherlands to adhere to the maximum growth rates of net expenditure,

which are expected to be endorsed by the Council. At the same time, the Commission notes that

the general government deficit and public debt ratios in the Netherlands are below the 3% and 60%

of GDP ratios in 2025 and projected to be so also in 2026.

Portugal - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. Similarly, the net expenditure growth in 2026 is projected to

be above the ceilings recommended by the Council both in annual and cumulative terms. After

46

taking into account the flexibility for higher defence spending provided for by the national escape

clause, the corresponding cumulated deviations are projected to be below 0.6% of GDP in both

years. At the same time, the Commission notes that the budgetary position in 2025 is in surplus

and projected to be close to balance in 2026. Therefore, Portugal is deemed to be compliant with

the budgetary policy obligations of the Stability and Growth Pact both in 2025 and 2026.

However, after considering the flexibility provided by the national escape clause, net expenditure

growth is projected to be above the recommended ceilings. Hence, the Commission recommends

to the Council to invite Portugal to ensure that net expenditure respects the recommended

maximum growth rates.

Slovenia - The net expenditure growth in 2025 is above the ceilings recommended by the Council

both in annual and cumulative terms. Similarly, the net expenditure growth in 2026 is projected to

be above the ceilings recommended by the Council both in annual and cumulative terms. After

taking into account the flexibility for higher defence spending provided for by the national escape

clause, the corresponding cumulated deviations are projected to be below and above the 0.6% of

GDP in 2025 and 2026 respectively. Therefore, after considering the flexibility provided by the

national escape clause, Slovenia is assessed to be non-compliant with the maximum growth

rate of net expenditure in 2025 and projected to be at risk of material non-compliance in

2026. Hence, the Commission recommends to the Council to invite Slovenia to take action to

control net expenditure so that it respects the recommended maximum growth rates. A

confirmation of the material non-compliance based on outturn data for 2026 could trigger a report

under Article 126(3) TFEU for the assessment of compliance with the debt criterion.

Due to the planned general government deficit above the 3% of GDP deficit reference value in

2026, Slovenia has been assessed in the report under Article 126(3) TFEU. In light of the

assessment in that report, the Commission is of the view that there is no case to open an excessive

deficit procedure for Slovenia at this stage. Fiscal developments in Slovenia will be reassessed in

autumn 2026. However, significant uncertainty remains over the fiscal outlook for Slovenia in

2026. If sufficient corrective measures are not taken in a credible and timely manner, this may lead

to the opening of the excessive deficit procedure based on the deficit criterion in autumn.

Sweden - The net expenditure growth in 2025 is below the ceilings recommended by the Council

in both annual and cumulative terms. In 2026, the net expenditure growth is projected to be above

the ceiling recommended by the Council in annual terms, with the corresponding deviation being

projected above 0.3% of GDP. However, the net expenditure growth in cumulative terms is

projected below the recommended ceiling. Therefore, Sweden is assessed to be compliant with

the recommended maximum growth rate of net expenditure in 2025. In 2026, Sweden is

projected to be at risk of material non-compliance with the recommended annual growth

rate of net expenditure, while it is projected to be compliant with the cumulative growth rate.

Hence, the Commission recommends to the Council to invite Sweden to ensure that net

expenditure respects the recommended maximum growth rates. At the same time, the Commission

47

notes thatthe general government deficit and public debt ratios in Sweden are below the 3% and

60% of GDP ratios in 2025 and projected to be so also in 2026.

48

Table 3 Annual and cumulated deviations (% GDP) of net expenditure growth

Annual and cumulated deviations (% GDP)

Annual

deviation

Cumulated

deviation

National

escape clause

(NEC)

Reference

year for NEC

Cumulated

deviation

taking into account

flexibility from

NEC

2025 2026 2025 2026 2025 2026

(A) (B) (C) (D) (E) (F) (G) (H)

Member States under the excessive deficit procedure

BE 0.1 -0.3 0.1 -0.2 Yes 2021 -0.5 -0.9

FR 0.0 0.1 -0.3 -0.2 No - - -

IT 0.1 -0.1 0.0 -0.1 No - - -

HU 1.5 2.3 0.8 3.0 Yes 2021 0.0 1.9

MT* -0.1 0.1 2.3 2.2 No - - -

AT -0.3 -0.1 -0.3 -0.4 Yes 2021 -0.4 -0.7

PL 0.9 -0.2 1.2 1.0 Yes 2021 -0.3 -0.5

RO -0.8 -0.3 -0.8 -1.0 No - - -

SK -0.9 0.8 -1.9 -1.0 Yes 2021 -2.5 -1.6

FI -1.0 1.5 -1.0 0.5 Yes 2021 -1.6 -0.9

Other Member States

BG 2.1 0.2 2.1 2.2 Yes 2024 1.4 1.6

CZ 0.2 1.5 -1.4 0.1 Yes 2021 -1.7 -0.2

DK 1.0 0.4 -0.6 -0.1 Yes 2021 -1.6 -1.5

DE -0.3 0.5 -0.3 0.3 Yes 2021 -0.7 -0.5

EE -2.0 2.8 -1.4 1.5 Yes 2021 -2.9 0.0

IE -0.5 -0.1 -0.5 -0.6 No - - -

EL -0.3 1.5 -1.3 0.2 Yes 2024 -1.5 -0.2

ES^ 0.4 0.6 0.1 0.7 Yes 2024 -0.1 0.4

HR 1.8 0.3 1.4 1.6 Yes 2021 0.9 1.0

CY 1.3 0.9 1.0 1.8 No - - -

LV -0.4 1.2 -1.9 -0.6 Yes 2021 -2.6 -2.1

LT 1.5 0.7 1.5 2.2 Yes 2021 0.3 0.7

LU 1.3 -0.6 0.6 0.0 No - - -

NL - 0.1 - 0.1 No - - -

PT 0.2 0.2 0.4 0.6 Yes 2021 0.4 0.6

SI 1.4 1.2 0.5 1.7 Yes 2021 0.3 1.2

SE -0.9 1.0 -1.1 0.0 No - - -

49

Table 3 - continued

Annual and cumulated deviations (% GDP) – previous recommendations§

Annual

deviation

Cumulated

deviation

National

escape clause

(NEC)

Reference

year for NEC

Cumulated deviation

taking into account

flexibility from NEC

2025 2026 2025 2026 2025 2026

(A) (B) (C) (D) (E) (F) (G) (H)

IE 0.3 - -0.1 - No - - -

NL 1.5 - 1.0 - No - - -

FI -1.3 - -1.5 - Yes 2021 -2.5 -

Note: A positive (negative) deviation indicates net expenditure growth exceeding (remaining below) the

maxima recommended by the Council. For Member States for which the national escape clause for defence

spending has been activated, deviations above the threshold of 0.6% of GDP in columns (G) and (H) are

highlighted in bold. For the rest of Member States, deviations in columns (A) to (D) are shown in bold if these

are above the 0.3% of GDP (annual terms) and/or 0.6% of GDP (in cumulative terms) thresholds. Please note

that the Commission assessment of compliance with the net expenditure growth is based on exact figures. In

this Communication, the figures underpinning the assessment have been rounded to one decimal place for

presentation purposes.

*For Malta, the Commission recommends to the Council the abrogation of the decision establishing an

excessive deficit. ^ Columns (E) to (H) assume the activation of the national escape clause for defence

spending. § For Ireland, the Netherlands and Finland, the assessment of 2025 is carried out against Council

recommendations adopted in January 2025.

Source: Commission Spring 2026 Forecast and Commission calculations

50

Table 4 General government balance, debt and GDP growth

General government

balance (% GDP)

General government debt

(%GDP)

GDP

(real growth rate)

2025 2026 2027 2025 2026 2027 2025 2026 2027

Member States under the excessive deficit procedure

BE -5.2 -5.2 -5.4 107.9 110.5 112.8 1.0 0.7 0.9

FR -5.1 -5.1 -5.7 115.6 118.1 120.2 0.8 0.8 1.1

IT -3.1 -2.9 -2.9 137.1 138.5 139.2 0.5 0.5 0.6

HU -4.7 -6.2 -5.8 74.6 75.1 76.8 0.5 1.8 2.1

MT* -2.2 -2.2 -2.1 46.4 46.2 46.2 4.0 3.7 3.6

AT -4.2 -4.1 -4.1 81.5 83.4 84.9 0.6 0.6 0.9

PL -7.3 -6.5 -6.3 59.7 64.5 68.3 3.6 3.5 2.8

RO -7.9 -6.2 -5.8 59.3 61.6 63.4 0.7 0.1 2.3

SK -4.5 -4.6 -5.4 61.4 63.7 66.9 0.8 0.8 1.5

FI -3.4 -4.5 -4.6 88.5 91.2 93.1 0.2 0.8 1.4

Other Member States

BG -3.5 -4.1 -4.3 29.9 32.3 35.5 3.1 2.5 2.2

CZ -2.1 -2.8 -2.9 44.3 45.8 47.2 2.6 1.8 2.4

DK 2.9 0.9 0.5 27.9 27.0 26.2 2.9 1.9 1.8

DE -2.7 -3.7 -4.1 63.5 65.8 68.0 0.2 0.6 0.9

EE -2.0 -4.5 -4.8 24.1 26.9 30.5 0.6 1.6 1.7

IE 1.8 1.4 1.2 32.9 32.4 31.6 12.3 -1.2 3.4

EL 1.7 0.8 0.6 146.1 140.7 134.4 2.1 1.8 1.6

ES -2.4 -2.4 -2.0 100.7 99.6 98.9 2.8 2.4 1.9

HR -3.0 -2.9 -2.7 56.3 55.9 55.6 3.4 2.7 2.5

CY 3.4 2.1 2.5 55.0 50.4 45.5 3.8 2.3 2.7

LV -2.5 -3.3 -4.3 46.9 48.8 53.8 2.1 1.4 1.6

LT -1.8 -2.2 -2.7 39.5 44.6 48.4 2.9 3.0 2.1

LU -2.0 -1.2 -1.5 26.5 29.2 30.2 0.6 1.6 2.0

NL -1.6 -2.5 -1.9 44.4 46.9 47.0 1.8 1.0 1.1

PT 0.7 -0.1 -0.4 89.7 87.6 86.0 1.9 1.7 1.8

SI -2.5 -3.3 -3.5 65.7 64.9 65.1 1.1 1.9 2.3

SE -1.3 -2.8 -2.5 35.1 36.6 37.7 1.5 1.8 2.2

*For Malta, the Commission recommends to the Council the abrogation of the decision establishing an excessive deficit.

Source: Commission 2026 Spring Forecast

51

Box 5 - Methodological approach underpinning the assessment of compliance

A Member State is assessed (66) to be ‘compliant’ when the net expenditure (67) growth is within

the ceilings recommended by the Council. Where net expenditure growth is higher than

recommended (i.e. positive deviations), the Commission considers the size of the deviation in

relation to the thresholds of 0.3% of GDP in annual terms (see columns (A) and (B) in Table X1X)

and 0.6% of GDP in cumulative terms since the start of the plan (columns (C) and (D)). A positive

deviation below these thresholds entails an assessment of (risk of) non-compliance, while a

deviation above these thresholds entails an assessment of (risk of) material non-compliance (68).

In its assessment of compliance based on net expenditure growth, the Commission also takes into

account the overall budgetary position of a Member State, in particular whether it is close to

balance or in surplus.

In Spring 2026, for the first time after the entry into force of the reformed Economic Governance

framework, the fiscal assessment reflects the Commission’s calculation of the control account for

each Member State based on outturn data. The control accounts keep track of deviations from the

recommended maximum growth rates of net expenditure both in annual and cumulative terms

since the base year of the relevant Council recommendation for each Member State. They also

constitute the basis to monitor compliance with the Council recommendations under the excessive

deficit procedure.

For the Member States for which the national escape clause for defence spending has been

activated (column (E)), the assessment of compliance focusses on the comparison in cumulative

terms and includes a check whether any positive deviation from the recommended maximum

growth of net expenditure in cumulative terms is explained by a corresponding increase in defence

expenditure compared to a reference year (column (F)), up to 1.5% of GDP over the period 2025

to 2028. If the cumulated deviation can be explained by the increase in defence expenditure

compared to the reference year (columns (G) and (H)), the Member State is considered to be

compliant.

66 The Commission assessment of compliance with the net expenditure growth is based on exact figures from the control account.

In this Communication, the figures underpinning the assessment have been rounded to one decimal place for presentation purposes

(see Table 3). 67 For an analytical presentation of the net expenditure indicator and the control account, please see the Fiscal Statistical Tables,

which provide background data relevant for the assessment of the budgetary policies of the Member States, SWD(2026) 200 final,

Brussels 3.6.2026. 68 According to Regulation (EC) No 1467/97, if the general government debt of a Member State exceeds 60% of GDP, its fiscal

position is not ‘close to balance or in surplus’ and the deviation of the net expenditure growth from the recommended ceilings

exceeds 0.3% of GDP annually or 0.6% of GDP cumulatively, the Commission should prepare a report under Article 126(3) TFEU

for the assessment of the debt criterion.