               EUROPEAN COMMISSION
            Brussels, 23.8.2017
            COM(2017) 448 final

            Recommendation for a
            COUNCIL DECISION
            authorising the opening of negotiations on the conclusion of a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (MAC Protocol)

               EXPLANATORY MEMORANDUM

               1.CONTEXT OF THE PROPOSAL

               •Reasons for and objectives of the proposal

                  Under the auspices of UNIDROIT (International Institute for the Unification of Private Law), an intergovernmental organisation to which all the Member States belong, a Convention on International Interests in Mobile Equipment (“the Cape Town Convention”) and a Protocol on Matters Specific to Aircraft Equipment were adopted at a Diplomatic Conference at Cape Town, South Africa, in November 2001.

                  The Cape Town system has a flexible structure: it is formed by a framework Convention laying down legal rules applicable to all categories of mobile equipment complemented by specific Protocols containing special rules relating to particular types of equipment.

                  The Convention provides rules for the establishment and effects of an international interest (security agreement, title reservation agreement or leasing agreement) relating to certain categories of mobile equipment designated in the Protocols relating to the following categories: aircraft equipment (airframes, aircraft engines and helicopters), railway rolling stock and space assets.

                  These Protocols may amend the Convention where the specific features of the relevant sector so require. It is accordingly the Protocol and not the Convention that prevails as regards each category of mobile equipment. The States’ obligations under the Convention vary with the Protocol to which they accede. The Convention can apply to a category of mobile equipment only when the relevant Protocol comes into force and only as between the Parties to that Protocol. But the Convention and the Protocol must then be read together as a single instrument.

                  The categories of mining, agriculture and construction are areas of commercial activity of universal importance, especially in developing countries. That's why, since 2006, the preparation of a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (hereinafter: "MAC Protocol") was included in the UNIDROIT Work Programme. The reasons agricultural, construction and mining equipment were proposed by UNIDROIT for a fourth protocol are twofold. Firstly, it would allow enterprises engaged in agriculture, construction and mining the ability to acquire equipment they would otherwise not be able to acquire and thus to permit them to optimise their activity. Secondly, it would allow producers of equipment to export to markets that without such a protocol would remain closed to them.

                  After preparatory work, including several meetings of a Study Group and consultations with private industry, at its 95th session (18-20 May 2016), the Governing Council of UNIDROIT considered the draft text produced by the Study Group sufficiently developed to warrant the convening of a Committee of Governmental Experts. The first session of the Committee of Governmental Experts took place in Rome, from 20 to 24 March 2017.

                  The Commission, representing the European Union, which has observer status at UNIDROIT, participated in the meeting on the basis of the coordinated position adopted by the Council Working Party in Civil Law Matters (General Questions) and set out in Council document 7083/17 EU RESTRICTED.

                  The second and likely last session of the Committee of Governmental Experts will take place in Rome from 2 to 6 October 2017. The Diplomatic Conference for the adoption of the MAC Protocol should take place in the second half of 2018. It is therefore advisable that the coordinated position agreed by the Council Working Party is confirmed by official negotiating directives allowing the Commission to represent EU's interest also at the future Diplomatic Conference.

               •Consistency with existing policy provisions in the policy area

                  The EU has already taken action in relation to the Cape Town Convention, by acceding to the Convention and its Aircraft Protocol in 2009
                     1
                  , by signing the Railway Protocol in 2009
                     2
                   and approving it in 2014
                     3
                  .

                  Also in relation to the Space Protocol, on the basis of the negotiating directives adopted by the Council on 10 February 2004
                     4
                  , the Commission, representing the EU, closely followed the meetings of the five sessions of the UNIDROIT Committee of Governmental Experts for the adoption of the draft Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Space Assets and participated to the 2012 Diplomatic Conference where the Space Protocol was adopted.

               •Consistency with other Union policies

                  This recommendation for negotiating directives is consistent with the general policy of the EU to take action to ensure that the EU exclusive external competence is respected in the international framework, by joining international conventions including provisions under EU exclusive external competence when this is permitted by the presence of a REIO clause, allowing (as in the present case) Regional Economic Integration Organisations to sign or ratify an international instrument, or by authorizing EU Member States to do so on behalf of the Union.

                  As the acquis related to judicial cooperation in civil matters is well developed, this has led to a correspondent extension of the EU exclusive competence in the international area. In some cases, this exclusive competence covers the whole instrument (e.g. The Hague Convention of 30 June 2005 on Choice of Court Agreements and The Hague Convention of 23 November 2007 on the International Recovery of Child Support and Other Forms of Family Maintenance); in other cases, the EU exclusive competence is limited to some provisions of the instrument and this leads, to the extent that the EU does not decide to exercise also shared competence, to "mixed agreements".

                  The Cape Town Convention and its Protocols are mixed agreements: some matters fall within the EU exclusive competence, while others are in the competence of Member States to the extent that the EU has not decided to also exercise shared competences in relation to this Convention and its Protocols. On the basis of the general rules governing EU exclusive competence, Member States can only act in matters of exclusive competence if authorised by the EU and therefore may sign/ratify the Protocols only after signature/ratification-accession-approval by the EU.

               2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

               •Legal basis

                  The recommendation for a Council Decision on the negotiating directives is based on Articles 81 and 218(3) and (4) of the TFEU, being the MAC Protocol an international instrument. Judicial cooperation in civil and commercial matters is governed by Article 81 TFEU, which is thus the legal basis of EU's competence in this area.

                  In line with Article 3(2) TFEU, and the jurisprudence of the Court of Justice of the European Union, in particular Opinion 1/03 of 7 February 2006 on the competence of the Union to conclude the new Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, as well as Opinion 1/13 of 14 October 2014 on the exclusive competence of the Union related to the acceptance of the accession of a third State to the Convention on the civil aspects of international child abduction, the negotiation and conclusion of some provisions of the UNIDROIT draft MAC Protocol come in the scope of the EU's exclusive external competence as they "may affect common rules or alter their scope".

                  The issue has been extensively dealt with in the previous recommendations to the Council in relation to the negotiation directives adopted in relation to the Cape Town Convention and its three Protocols and there is no need to elaborate further on the subject. However, a detailed explanation of the provisions under EU exclusive competence is provided below.

               •Subsidiarity (for non-exclusive competence)

                  Not applicable.

               •Proportionality

                  The recommended negotiating directives are similar to those adopted for the previous three Protocols and do not go beyond the aim of ensuring that the EU exclusive external competence on certain provisions of the MAC Protocol is respected and that Member States are allowed to apply EU law among themselves.

                  Moreover, the EU participation to the preparation of the MAC Protocol on the basis of these negotiation directives is without prejudice to the question on whether the EU would accede to the future instrument. Indeed, the EU has full discretion to take such a decision in the future, as it has been the case for the Space Protocol in relation to which the EU has not yet taken any decision concerning its signature or ratification.

               •Choice of the instrument

                  Not applicable.

               3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

               ••Stakeholder consultations

                  Since when UNIDROIT convened the first meeting of the Governmental Experts in September 2016, Member States were regularly informed and consulted in the Council Working Party on Civil Law Matters (General Questions) on the coordinated lines to take in relation to the EU position. The EU coordinated position for the first meeting of the Governmental Experts is to be found in the mentioned Council Document 7083/17 EU RESTRICTED. In addition, the delegates of the Member States were informed on the spot in Rome during the ad hoc EU coordination meeting. The Commission reported about the outcome of the first session in the Council Working Party on Civil Law Matters (General Questions) of 29 May 2017.

                  •
                        Collection and use of expertise

                  The Commission has relied upon the experience gained during the preparation of the negotiating directives related to the negotiations of the Cape Town Convention and its Protocols. However, it may be mentioned that, in the context of preparatory work carried out before the first meeting of Governmental Experts in March 2017, consultations with private industry (2010-2012) were conducted by Germany and the United States, which showed a general interest and support for the MAC Protocol.

                  At the 93rd session of the UNIDROIT Governing Council in 2014 it was agreed to convene a Study Group entrusted with preparing a first draft of the MAC Protocol prior to its 95th session. The Study Group is composed of various international experts in secured transactions law and has met four times since 2014. Ahead of the first meeting of Governmental Experts, UNIDROIT invited its Member States and States parties to the Cape Town Convention to attend on 2 December 2016 a half-day symposium to discuss key aspects of the project.

               •Impact assessment

               This recommendation is not supported by an impact assessment, as it was the case for the three precedent recommendations for negotiating directives adopted by the Council in relation to the Cape Town Convention and its Aircraft Protocol, Railway Protocol and Space Protocol. At this stage the only thing to be decided by the Council is whether the EU participates in the final stages of the negotiation, and this is without prejudice of whether or not the EU will sign and conclude the Protocol.

               The few provisions under EU exclusive competence detailed below are not controversial, being the same private international law rules included in the Convention and its previous Protocols which are deemed to affect the EU acquis (provisional measures, insolvency provisions, provisions on choice of law). As for the precedent instruments, these provisions are opt-in provisions, meaning that the EU, -if the choice to ratify the Protocol would be made at a later stage-can choose not to apply these rules in order to preserve the application of the EU acquis among EU Member States. This was the choice made at the time of the accession to the Cape Town Convention and its Aircraft Protocol and at the time of the approval of the Railway Protocol. As indicated above, no action has been taken yet in relation to the signature/ratification of the Space Protocol.

               The EU’s exclusive competence is limited to the private international law provisions; the substantive rules of the Protocol are the competence of the Member States insofar as the EU will not exercise any shared competence in this regards. Therefore an impact assessment on the rules under EU exclusive competence would not be meaningful as there is no choice available for the EU.

               However, as it has been reported in the above paragraph, there has been intensive consultations/preliminary studies carried out in the context of UNIDROIT before the work on the draft Protocol was considered sufficiently ripe to convene the first meeting of Governmental Experts.

               This work has also included a paper prepared by the Director of Research at the Center for the Economic Analysis of Law (CEAL), on the potential economic benefits of the MAC Protocol, which was presented to the Governing Council at the 92nd session in 2013. The CEAL study noted that the MAC Protocol could facilitate using about $2 trillion in MAC equipment and would increase the sales of MAC equipment by $600 billion over five-seven years
                  5
               .

               •Fundamental rights

                  Not applicable

               4.BUDGETARY IMPLICATIONS

                  Not applicable

               5.OTHER ELEMENTS

               •Implementation plans and monitoring, evaluation and reporting arrangements

                  As it is common practice, the Commission will regularly inform Member States in the context of the Council Working Party on Civil Law Matters (General Questions) about the progress of the negotiations.

               •Detailed explanation of the specific provisions of the recommendation

                  The negotiating directives recommended to the Council are identical to the coordinated position adopted ahead of the first meeting of Governmental Experts. They are also virtually identical to those adopted for the other Protocols, taking into account the fact that the text of the MAC Protocol is already stable and should not be subject to major changes in the next meeting. In any case, no changes are expected in relation to the provision under EU exclusive competence or of general EU interest (REIO clause, declarations).

                  I. The provisions under EU exclusive competence

                  a) Provisional measures and insolvency

                  The issues under EU exclusive competence are not controversial. They are very similar to, if not identical with, the correspondent provisions of the Aircraft, Rail and Space Protocols.

                  In the negotiating directives concerning the previous Protocols, the provisions regarding jurisdiction, recognition, enforcement, provisional and protective measures were specifically taken into account in so far as they could affect the application of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgement in civil and commercial matters.

                  In addition, concerning the provisions on remedies on insolvency and on insolvency assistance of the Protocols, the negotiating directives stated that their compatibility with the with Regulation (EC) No 1346/2000 on insolvency proceedings should be ensured.

                  A negotiating directive concerning the accession of the European Community (now: European Union) by means of a REIO clause was also included.

                  The Commission considers that the current draft MAC Protocol fully respects the EU acquis as far as the provisional measures (Article IX of the draft Protocol-Modification of provisions regarding relief pending final determination) and the insolvency provisions (Article X-Remedies on insolvency and Article XI -Insolvency assistance) are concerned.

                  Article 55 of the Cape Town Convention concerns the declaration regarding relief pending final determination (possibility not to apply Article 13 (Relief pending final determination) and 43 (Jurisdiction under Article 13 (1)). Both provisions could have indeed affected the application of Article 31 (Provisional, including protective measures) of Council Regulation (EC) No 44/2001 of 22 December 2000 (the "Brussels I Regulation").

                  At the November 2001 Diplomatic Conference on the Cape Town Convention, the European Community, in order to safeguard the application of Article 31 of the Brussels I Regulation, obtained that the full or partial application of Article 13 and 43 of the Convention would depend on a declaration.

                  At the time of its accession to the Cape Town Convention, the European Community made indeed a declaration stating that "where the debtor is domiciled in the territory of a Member State of the Community, the Member States bound by Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters will apply Articles 13 and 43 of the Cape Town Convention for interim relief only in accordance with Article 31 of Regulation (EC) No 44/2001 as interpreted by the Court of Justice of the European Communities in the context of Article 24 of the Brussels Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters".

                  In the negotiations guidelines concerning the Aircraft, Rail and Space Protocols it was expressly mentioned that Article 55 of the Cape Town Convention should continue to be applied also to the Protocols.

                  Article IX of the draft MAC Protocol "Modification of provisions regarding relief pending final determination" provides for this possibility and it is virtually identical to the equivalent Articles of the Aircraft, Rail and Space Protocols (Articles X, VIII and XX respectively).

                  It has to be noted that, after the recast of the Brussels I Regulation
                     6
                  , Article 31 has become Article 35 but its wording is identical.

                  Concerning insolvency, the negotiating directives concerning the adopted Protocols asked that the relevant provisions should be optional as they affected the application of Regulation (EC) No 1346/2000 on insolvency proceedings.

                  Article X of the draft MAC Protocol (Remedies on insolvency) provides indeed for the opt-in possibility and it is virtually identical to the equivalent Articles of the Aircraft Protocol (Article XI), the Rail Protocol (Article IX) and the Space Protocol (Article XXI). Also Article XI (Insolvency assistance) of the draft MAC Protocol is an opt-in provision and it is virtually identical to the equivalent Articles of the Aircraft Protocol (Article XII), the Rail Protocol (Article IX) and the Space Protocol (Article XXII).

                  Also in this case, the recent recast of the Insolvency Regulation
                     7
                   has not changed the affectation of EU law by the insolvency provisions of the MAC Protocol.

                  b) Choice of law

                  Article VI of the current version of the draft MAC Protocol contains provisions on the choice of law by the parties which is to govern their contractual rights and obligations, wholly or in part.

                  At the time of the adoption of the previous negotiating directives, no European Union legislation in matters relating to the law applicable to contractual obligations was in force, therefore no specific negotiating directive on this matter was provided by the Council to the Commission.

                  Meanwhile, Regulation (EC) No 593/2008 on the law applicable to contractual obligations (known as "Rome I") was adopted on 17 June 2008 and entered into application as from 17 December 2009
                     8
                  .

                  The extensive choice of law possibilities provided for in paragraph 2 of Article VI is not compatible with the system established by Regulation No 593/2008; therefore this Article should not be applied by EU Member States.

                  This is the solution chosen by the EU also for the other Protocols.

                  Council Decision of 6 April 2009, concerning the accession of the European Union to the Cape Town Convention and its Protocol on matters specific to aircraft equipment, contains specific reference to the exclusive Community competence on some matters governed by the Aircraft Protocol and, in particular, to the Rome I Regulation. Therefore, the Article of the Aircraft Protocol on choice of law was subject to a specific declaration made by the Community.

                  In a similar way, in relation to the Rail Protocol, the matter of the choice of law was specifically considered in the declaration pursuant to Article XXII(2) concerning the competence of the European Community over matters governed by the Rail Protocol. Point 5 of the Declaration states that the Member States of the European Community have transferred their competence to the Community as regards matters which affect (inter alia) the Rome I Regulation.

                  Article VIII of the Space Protocol is instead an opt-out provision, meaning that it applies unless expressly excluded in a declaration made by a Contracting State. Thus, at the time of the possible signature/ratification/approval of the Space Protocol, the EU would have to make the correspondent declaration.

                  The current version of Article VI in the draft MAC Protocol is an opt-in provision and this should be maintained in the final text.

                  II. Final provisions of EU interest

                  The draft final provisions (Article XXII-Regional Economic Integration Organisation) contain a REIO clause which is virtually identical to those of Article 48 of the Cape Town Convention, Article XXVII of the Aircraft Protocol, Article XXII of the Rail Protocol and Article XXXVII of the Space Protocol.

                  This article enables a Regional Economic Integration Organisation established by sovereign States and having competence over matters within the scope of the Protocol (meaning the European Union) to sign, accept, approve or accede to the Protocol as it were a Contracting State.

                  The EU should also pay attention to the insertion of the opt-in possibilities of EU interest in the draft final provisions (Article XXVI-Declarations regarding certain provisions). The provisions of this Article are modelled on the correspondent rules of the Aircraft, Rail and Space Protocols.

                  In conclusion, the provisions of the draft MAC Protocol under EU exclusive competence or of EU interest, in their current formulation, do not raise any concern. The Commission therefore proposes, consistently with the coordinated position adopted for the first meeting of the Governmental Experts in March 2017, to retain these provisions as they are now.

               Recommendation for a

               COUNCIL DECISION

               authorising the opening of negotiations on the conclusion of a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (MAC Protocol)

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 218(3) and (4) thereof,

               Having regard to the recommendation from the European Commission,

               Whereas:

               (1)
                     The European Community acceded to the Convention on International Interests in Mobile Equipment and its Protocol on matters specific to aircraft equipment on 29.4.2009.

               (2)
                     The European Community signed the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Railway Rolling Stock on 10.12.2009.

               (3)
                     The European Union approved the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Railway Rolling Stock on 18.12.2014.

               (4)
                     Preparatory work on a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (MAC Protocol) in the context of the International Institute for the Unification of Private Law (UNIDROIT) framework is on-going.

               (5)
                     The European Union has exclusive competence over some of the matters governed by the draft MAC Protocol.

               (6)
                     The European Union should participate in the negotiations of such instrument in relation to matters falling within the exclusive competence of the Union.

               HAS ADOPTED THIS DECISION:

               Article 1

               The Commission is hereby authorised to negotiate, on behalf of the Union, in relation to matters falling within the exclusive competence of the Union, a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (MAC Protocol).

               Article 2

               The negotiating directives are set out in the Annex.

               Article 3

               The negotiations shall be conducted in consultation with the special committee hereby designated pursuant to Article 218(4) of the Treaty.

               Article 4

               This Decision is addressed to the Commission.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        2009/370/EC: Council Decision of 6 April 2009 on the accession of the European Community to the Convention on international interests in mobile equipment and its Protocol on matters specific to aircraft equipment, adopted jointly in Cape Town on 16 November 2001, OJ L 121, 15.5.2009, p. 3-7.

                     (2)

                        2009/940/EC: Council Decision of 30 November 2009 on the signing by the European Community of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Railway Rolling Stock, adopted in adopted in Luxembourg on 23 February 2007, OJ L 331, 16.12.2009, p. 1–16.

                     (3)

                        2014/888/EU: Council Decision of 4 December 2014 on the approval, on behalf of the European Union, of the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Railway Rolling Stock, adopted in Luxembourg on 23 February 2007 , OJ L 353, 10.12.2014, p. 9-12.

                     (4)

                        5609/04 JUSTCIV 9 TRANS 35 OC 46 RESTREINT UE

                     (5)

                        For further information on the preparatory works on the development of the MAC Protocol, see:
                  http://www.unidroit.org/work-in-progress-studies/current-studies/mac-protocol

                     (6)

                        Regulation (EU) No 1215/2012 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters, OJ L 351, 20.12.2012, p. 1–32 (

                     (7)

                        Regulation (EU) 2015/848 on insolvency proceedings, OJ L 141, 5.6.2015, p. 19–72

                     (8)

                        Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I), OJ L 177, 4.7.2008, p. 6–16

    ---documentbreak---

               EUROPEAN COMMISSION
            Brussels, 23.8.2017
            COM(2017) 448 final

            ANNEX
            to the
            Recommendation for a Council Decision
            authorising the opening of negotiations on the conclusion of a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (MAC Protocol)

               ANNEX […]

               Directives for the negotiation of a Protocol to the Convention on International Interests in Mobile Equipment on Matters specific to Agricultural, Construction and Mining Equipment (MAC Protocol)

               1. The Commission should ensure right up to the end of negotiations that the MAC Protocol is compatible with the provisions of European Union legislation on jurisdiction, recognition and enforcement of judgements. Failing this, the Commission should ensure that the MAC Protocol include one or more clauses enabling Member States to apply Regulation (EU) No 1215/2012 in their relations with each other in preference to the Cape Town Convention and its MAC Protocol.

               It must be ensured that Article 55 of the Cape Town Convention applies to the Protocol as applied to mobile equipment on matters specific to agricultural, construction and mining equipment.

               To that end it must be ensured that the current provision of Article IX of the draft MAC Protocol "Modification of provisions regarding relief pending final determination" is maintained in the Protocol so that this Article is optional and would be applied only upon a declaration from the Contracting State.

               2. It must be ensured that the Articles of the Protocol relating to insolvency proceedings are compatible with Regulation (EU) No 2015/848.

               To that end it must be ensured that the current provisions of Article X of the draft MAC Protocol (Remedies on insolvency) and Article XI (Insolvency assistance) are maintained so that these Articles are optional and would be applied only upon a declaration from the Contracting State.

               3. It must be ensured that the current provision of Article VI of the draft MAC Protocol (Choice of law) is maintained in the Protocol so that this Article is optional and would be applied only upon a declaration from the Contracting State.

               4. It must be ensured that the current provision of Article XXII (Regional Economic Integration Organisation) is maintained in the Protocol so that a Regional Economic Integration Organisation established by sovereign States and having competence over matters within the scope of the Protocol may sign, accept, approve or accede to the Protocol as it were a Contracting State.


               EUROPEAN COMMISSION
            Brussels, 24.11.2021
            COM(2021) 742 final

            Recommendation for a
            COUNCIL RECOMMENDATION
            on the economic policy of the euro area
            {SWD(2021) 362 final}

               Recommendation for a

               COUNCIL RECOMMENDATION

               on the economic policy of the euro area

               THE COUNCIL OF THE EUROPEAN UNION,

               Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136 in conjunction with Article 121(2) thereof,

               Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
                  1
               , and in particular Article 5(2) thereof,

               Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances
                  2
               , and in particular Article 6(1) thereof,

               Having regard to the recommendation of the European Commission,

               Having regard to the conclusions of the European Council,

               Having regard to the opinion of the Economic and Financial Committee,

               Having regard to the opinion of the Economic Policy Committee,

               Whereas:

               (1)After a very deep recession in 2020, the euro area economy is experiencing a solid and fast recovery. GDP growth in the second quarter of 2021 surpassed expectations and, according to the Autumn 2021 economic forecast, the euro area’s GDP is expected to grow by 5.0 % in 2021. The euro area economy is set to regain its pre-crisis GDP level in the last quarter of 2021. By 2021Q2, seven euro area countries had already regained their pre-crisis GDP levels. Euro area annual GDP is forecast to grow by 4.3 % in 2022. Domestic demand is the main GDP growth driver, linked to the easing of restrictions further to the vaccination rollout, gradual improvements in the labour markets, the drawdown of extra savings accrued during the lockdown periods, and strong investment growth benefitting from favourable financing conditions and the policy support from NextGenerationEU. As recommended, euro area Member States have taken action, individually and collectively within the Eurogroup, to ensure a policy stance that supports the recovery from the COVID-19 crisis. Going forward, uncertainty and risks remains high, including the evolution of the pandemic, both within and outside the EU.

               (2)In the course of the year, strong domestic demand growth has met constraints on the supply side, including input scarcity and logistics disruptions. In addition, labour and skills shortages have become a growing concern in some sectors and Member States. After several years of very low rates, inflation in the euro area has picked up since the beginning of 2021, in particular on the back of surging energy prices and supply bottlenecks, suggesting a transitory phenomenon, linked to the post-lockdown adjustment process. Inflation has reached a ten-year high of 3.4% in the euro area in September 2021.

               (3)In 2021, the European recovery strategy has focused on putting NextGenerationEU, and its largest instrument the Recovery and Resilience Facility (RRF)
                  3
               , into effect. By mid-November 2021, the Council had adopted the recovery and resilience plans of 22 Member States, including 18 euro area countries, after positive assessments by the Commission. Over the next years, the implementation of reforms and investment under the RRF will have a deep positive impact on the functioning of the euro area economies. The Facility will foster upwards economic and social convergence across euro area Member States, given the key used to allocate its resources. It has also reinforced confidence and contributes to preserving growth and macro-financial stability, thus balancing the policy mix and complementing the European Central Bank (ECB)’s actions. Beyond supporting the recovery, the RRF aims at structurally transforming the Member States’ economies notably to achieve the green and digital transitions. The implementation of coherent investment and reforms under the RRF, together with the use of cohesion funds, aims to increase the euro area’s resilience to future shocks and to raise potential output in a durable manner, support employment and address social challenges. Furthermore, the issuance of euro-denominated debt by the Union to finance the RRF will add depth and liquidity to Europe’s capital markets and help to strengthen the euro as an international currency.

               (4)The implementation of the reforms and investments included in the recovery and resilience plans will give way to the disbursement of RRF funding and effectively contribute to the achievement of the euro area policy priorities, including the Council Recommendations on the economic policy of the euro area
                  4
               . This will concern, inter alia, strengthening national institutional frameworks, supporting high-quality public investment, policy measures in support to social cohesion and to a just green and digital transition. This should help ensure a sustainable and inclusive recovery, sustain growth potential and enhance resilience. This is in line with the Annual Sustainable Growth Survey and the four dimensions of competitive sustainability, i.e. environmental sustainability, productivity, fairness, and macroeconomic stability
                  5
               .

               (5)Appropriately supportive and mutually reinforcing economic policies have ensured effective macroeconomic stabilisation, and contained the impact on labour market outcomes, mitigating risks of scarring and supporting a rapid economic recovery. A consistent mix between monetary and fiscal policies along with structural reforms and measures to maintain financial stability will continue to be essential for the good functioning of the euro area, in full compliance with the respective roles of the Member States and institutions under the Treaty.

               (6)The ECB’s monetary policy measures aim to ensure the smooth functioning of different financial market segments and keep the monetary transmission channels intact, and ultimately safeguard medium-term price stability. In July 2021, the ECB published its new monetary policy strategy. The new strategy adopts a symmetric 2 % inflation target over the medium term. The Governing Council also confirmed that the set of ECB interest rates remains its primary monetary policy instrument. In October 2021, the ECB launched a two-year-long investigation phase on a digital euro. The creation of a digital euro would require an intervention of the Union legislature on the basis of Article 133 TFEU. Issuing such a central bank digital currency could, inter alia, secure the continued supply of public money in digital form, support the digitalisation of the European economy and actively encourage innovation in retail payments
                  6
               . Moreover, it would contribute to strengthening the international role of the euro and Europe’s open strategic autonomy.

               (7)On 19 October 2021, the European Commission has re-launched the debate on the economic governance review to build broad-based consensus on how to enhance the effectiveness and transparency of the framework, tackle macroeconomic imbalances and address fiscal challenges in a transition and growth-friendly manner, taking into account the lessons learnt from the COVID-19 crisis.

               (8)The deficit of the general government in the euro area as a whole is projected to reach 7.1 % of GDP in 2021 but to fall to 3.9 % in 2022. The euro area fiscal stance, stemming from national budgets and the EU budget, is projected to remain supportive in 2021 and 2022 (1¾ % and 1 % of GDP, respectively). In 2022, public investment, both nationally- and EU-financed, will contribute to the supportive stance. As of November 2021, the 18 euro area national recovery and resilience plans approved by the Council so far will provide large- scale financial support to euro area Member States of up to EUR 262 billion in grants and EUR 139 billion in loans in the period to 2026. Coordination of national fiscal policies, in full respect of the Stability and Growth Pact, is crucial for the effective response to the COVID-19 shock, a sustainable recovery, and the proper functioning of the Economic and Monetary Union (EMU). While the general escape clause will remain active in 2022, it is expected to be deactivated as of 2023. With the economic recovery taking hold, fiscal policy is pivoting from temporary emergency measures to targeted recovery support measures. The increase in the government debt ratios (from 85.5 % of GDP in 2019 to 100 % of GDP in 2021) has reflected the combined effects of the contraction in output and the necessary policy reaction to the very large COVID-19 shock. However, as debt ratios were already high in some euro area Member States before the shock, a gradual, continuous and growth-friendly debt reduction will be a policy objective across a large part of the euro area.

               (9)In this context, improving the composition of public finances, including by promoting investment, the quality of budgetary measures and ensuring fiscal sustainability over the longer term, including in view of climate change and the green and digital transitions, appear particularly relevant. Green budgeting, spending reviews, well-functioning public investment management schemes and effective public procurement frameworks, can create fiscal space for additional public investments. Reforms for more efficient and fairer revenue policy have become even more fundamental in the aftermath of the COVID-19 crisis. There is still scope to make the tax systems in the euro area more growth- and environment-friendly, in particular by reducing the tax wedge on labour, which remains high, in most euro area Member States. Measures addressing aggressive tax planning, tax avoidance and tax evasion can make tax systems more efficient and fairer, while supporting the recovery and increasing revenue. Globalisation has made it necessary to adjust the taxation framework to fit an increasingly digitalised economy. An agreement on reforming global taxation to limit harmful tax competition has been reached within the OECD/G20 Inclusive Framework on base erosion and profit shifting (BEPS).

               (10)The swift and forceful policy response at national and Union level, including through NextGenerationEU, has been effective in mitigating the impact of the crisis on households and firms. Thanks to this coordinated action, divergences have widened less than initially expected, and long-run scarring effects have been mitigated. Policy support, including through short-time work schemes and other job retention measures, has helped keep businesses in activity throughout the crisis and has limited the rise in the unemployment rate and the drop in disposable income. Although increasing, insolvency rates have remained contained in 2021 in spite of the gradual lifting of support measures. Labour markets are also showing gradual improvements, with employment back at 72.2 % in the second quarter of 2021, compared to the pre-COVID peak of 72.9 % in the fourth quarter of 2019. The accelerated adoption of digital technology throughout the crisis could have a positive impact on productivity if sustained over time. Still, the COVID-19 crisis has had substantial territorial, sectorial and distributional implications, which will require reallocations both within and across countries and sectors, with substantial transition costs for workers and companies.

               (11)Although the rise in bankruptcies has remained limited so far, the pandemic has left many firms with weaker balance sheets, which might constrain their ability to finance investment projects in the near term and compromise their repayment capacity. As the recovery takes hold, support should be gradually phased out and made more targeted. Making less use of debt instruments would limit contingent liabilities and help preserve businesses’ investment capacity. Timely withdrawal of policy support measures is a balancing act between supporting investment and employment, and avoiding failures of viable businesses on the one hand, without inhibiting the orderly exit of the unviable ones over the medium-term, on the other. In this context, improving access to finance for companies, strengthening firms’ balance sheets and enhancing the capacity and efficiency of insolvency frameworks is crucial. National insolvency regimes differ substantially across the euro area, and capacity-enhancing actions will be needed to facilitate an effective administration and judicial system. Improving insolvency frameworks can also contribute to sounder balance sheets in the banking sector, with a positive impact on credit supply. The Directive on restructuring and insolvency
                  7
               , which seeks to introduce minimum standards across Member States on preventive restructuring and debt discharge for entrepreneurs, will have to be transposed into national law by 17 July 2022. Moreover, the integration of EU capital markets is key to provide companies with alternative sources of funding to complement bank lending. Progress in the Capital Markets Union (CMU)
                  8
                can improve access to finance for euro area businesses, mobilise long-term investments in green, new technologies and infrastructure, promote equity investment and remove cross-border barriers to investment, including by harmonising certain aspects of substantive law on insolvency proceedings.

               (12)While employment is recovering rapidly, some sectors, specific categories of workers and regions are set to be durably impacted by the crisis and by the strong push for greening the economy. The new jobs being created may be different from the jobs that have been lost due to the crisis. Supply chain bottlenecks may slow down the rebound of employment in certain sectors. Policy measures that facilitate job transitions and labour market re-integration will therefore be key to support adjustment and mitigate social impacts in particular in the light of the twin transition. The Commission put forward a recommendation on an Effective Active Support to Employment following the COVID-19 crisis (EASE)
                  9
               , which invites Member States to develop coherent policy packages combining measures aimed at bridging the skill shortages and help individuals to successfully navigate the green and digital transitions. These packages would consist of three components: (i) time-limited and well-designed hiring and transition incentives and support to entrepreneurship; (ii) upskilling and reskilling opportunities linked to labour market needs; and (iii) enhanced support by employment services. Meanwhile, for the cohesiveness of the euro area social protection remains fundamental in the wake of the health and economic crises and with a view to ensuring fair twin transitions. The European Pillar of Social Rights
                  10
                remains the compass for employment, skills and social policy action fostering upward economic and social convergence and better working and living conditions in the Member States. The European Pillar of Social Rights Action Plan, adopted in March 2021, sets three EU headline targets on (i) employment, (ii) adult learning, and (iii) poverty reduction by 2030
                  11
               , to which policy actions recommended below will contribute. These targets have been welcomed by the EU leaders in the 8 May 2021 Porto Social Summit and the European Council on 24-25 June 2021.

               (13)Member States have designed ambitious reform and investment plans, with the financial and policy support of the RRF. Increasing the quality of institutions, in particular by strengthening administrative capacity, will be key to ensure a swift absorption of the related funds while avoiding duplications and interference with other EU instruments. Member States can improve the framework conditions for private investment by improving the business environment. Preserving and strengthening supply chain resilience in the Single Market, by detecting and addressing supply shortages and bottlenecks, alongside open markets, convergence in standards, greater diversification, circularity and resource efficiency, will be key to ensure the smooth functioning of the Single Market. The 2021 Council Recommendation on the economic policy of the euro area, of 13 July 2021, which calls for further integrating the single market for goods and services, including the digital single market, by removing unnecessary restrictions, enhancing market surveillance and guaranteeing sufficient administrative capacity, remains relevant.

               (14)The banking sector has shown its overall resilience when faced with severe economic stress, thanks to previous reforms. The extensive policy support in the trough of the crisis and the solid recovery recorded in 2021 have so far attenuated concerns about weaker corporate balance sheets. Still, euro area banks might experience some deterioration in asset quality. Timely monitoring of risks, proactive engagement with debtors and active management of non-performing loans is important to maintain their ability to finance the economic recovery.

               (15)The economic size and integration of the euro area, as well as the actions put in place to respond to the crisis, have been stabilising factors globally throughout the COVID-19 crisis. Given the interconnectedness of the economies, euro area Member States will in the coming years need to deliver the investments and reforms agreed to emerge stronger from the crisis, while further deepening the institutional setup of the euro area to increase its resilience to future shocks and stand stronger on the international scene. Economic and financial developments in advanced and emerging market economies have direct repercussions on the euro area through a number of channels, including through health and vaccination policy, monetary policy, financial flows, global value chains and trade. The constraints in global supply chains that arose in the wake of the recovery further testify to the growing global economic interconnectedness. Meanwhile, the euro area current account surplus continued its gradual decline and recorded a level close to that suggested by fundamentals. Strengthening the international role of the euro, which remained broadly stable in recent years, including through developing a digital euro, could enhance the economic and financial autonomy of the euro area and the Union, and improve global financial stability.

               (16)The deepening of EMU remains essential. The Banking Union and the Capital Markets Union are mutually reinforcing projects to promote growth, safeguard financial stability and support a genuine Economic and Monetary Union. Filling the remaining gaps would further increase the euro area’s stability and resilience, help the euro area economies thrive, and strengthen the international role of the euro. Completing the Banking Union, together with the timely ratification of the Amending Agreement to the ESM Treaty, and the Capital Markets Union remains essential. This will also support the green and digital transitions, which require important investments. The Euro Summit of 25 June 2021 reiterated the commitment to the completion of the Banking Union and invited the Eurogroup (in inclusive format) to agree, without delay and on a consensual basis, on a stepwise and time-bound work plan on all outstanding elements. It also called for rapid implementation of the CMU Action Plan in line with the priorities set out in the Council Conclusions of 3 December 2020. The 2021 Council Recommendation on the economic policy of the euro area, of 13 July 2021, which calls for completing the EMU and strengthening the international role of the euro, remains relevant.

               HEREBY RECOMMENDS that euro area Member States take action, individually, including through the implementation of their Recovery and Resilience Plans, and collectively within the Eurogroup, in the period 2022 –2023 to:

               1.Continue to use and coordinate national fiscal policies across Member States to effectively underpin a sustainable and inclusive recovery. Maintain a moderately supportive fiscal stance in 2022 across the euro area, taking into account national budgets and the funding provided by the Recovery and Resilience Facility. Gradually pivot fiscal measures towards investments that promote a sustainable and inclusive recovery, consistent with the green and digital transitions, paying particular attention to the quality of budgetary measures. Keep fiscal policy agile in order to be able to react if pandemic risks re-emerge. Differentiate fiscal policies taking into account the state of the recovery, fiscal sustainability and the need to reduce economic, social and territorial divergences. Once economic conditions allow, pursue fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment.

               2.Promote policies that tackle aggressive tax planning, tax evasion and tax avoidance to ensure fair and efficient tax systems. Work to limit harmful tax competition including through the implementation of the global consensus-based solution to address the tax challenges arising from the digitalisation and globalisation of the economy. Lower the tax wedge on labour and promote a shift-from labour taxation towards taxes that are less distortive. Transition from emergency to recovery measures in labour markets by ensuring effective active labour market policies: (i) supporting job transitions, in particular towards the green and digital economy, (ii) combining measures tackling skills shortages, strengthening upskilling and re-skilling, providing targeted hiring incentives and (iii) enhancing the capacity of public employment services to address labour market mismatches. Strengthen inclusive quality education and training systems. Promote labour market integration of vulnerable groups, in particular young people and women, ensure adequate working conditions and address labour market segmentation, develop and adapt where needed social protection systems to address challenges emerging after the COVID-19 crisis. Ensure the effective involvement of social partners in policy making, strengthen social dialogue and collective bargaining. Ensure sharing of, and convergence towards, good practices in labour market and social policies that increase economic and social resilience.

               3.Monitor the effectiveness of policy support packages for companies, focus on a more targeted support for the solvency of viable firms that have come under stress during the pandemic, and make greater use of equity-type instruments. Take actions to increase the capacity of insolvency frameworks to deal effectively and timely with bankruptcy and debt restructuring, maximize the preservation of value and promote an efficient allocation of capital and cross-border investments. Make progress in deepening the Capital Market Union, including by swiftly agreeing on the Commission legislative proposals to support the financing of the economy and to enhance investments opportunities for firms and individuals and remove cross-border barriers to investments in the single market.

               4.Continue to strengthen national institutional frameworks and pursue reforms to address bottlenecks to investment and reallocation of capital, and ensure the efficient and timely use of Union funds. Reduce the administrative burden for firms and improve the business environment. Strengthen the effectiveness and digitalisation of public administration. Improve public financial management, including through green budgeting and effective public investment management frameworks, and make use of spending reviews to improve the composition of public finances, in particular quality of public investments, investment in people and skills, and to better focus public expenditure on recovery and resilience needs.

               5.Ensure macro-financial stability, and maintain the credit channels to the economy, continuing to address non-performing loans through, amongst others, monitoring asset quality, timely and pro-active engagement with distressed debtors (in particular viable ones) and the further development of secondary markets for non-performing loans. Continue to work on completing the Banking Union, through a step-wise and time-bound work plan, and on strengthening the international role of the euro. Continue to support exploratory work on the possible introduction of a digital euro.

               Done at Brussels,

                     For the Council

                     The President

                     (1)

                        OJ L 209, 2.8.1997, p. 1.

                     (2)

                        OJ L 306, 23.11.2011, p. 25.

                     (3)

                        Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility, OJ L 57, 18.2.2021, p. 17.

                     (4)

                        Council Recommendation of 13 July 2021 on the economic policy of the euro area, OJ C 283, 15.7.2021, p. 1.

                     (5)

                        Annual Sustainable Growth Survey 2022, COM(2021)740

                     (6)

                        See the October 2020 ECB “Report on a digital euro”, available at
                  https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf
                  .

                     (7)

                        Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency), OJ L 172, 26.6.2019, p.18.

                     (8)

                        During the Euro Summit on 25 June 2021, EU leaders underlined their political support for the capital markets union (CMU) and called for rapid implementation of the CMU action plan.

                     (9)

                        Commission Recommendation (EU) 2021/402 of 4 March 2021 on an effective active support to employment following the COVID-19 crisis (EASE), OJ L 80, 8.03.2021, p. 1.

                     (10)

                        Interinstitutional Proclamation on the European Pillar of Social Rights, OJ C 428, 13.12.2017, p.10.

                     (11)

                        The EU committed to the following EU headline targets by 2030: at least 78% of the 20-64 population should be in employment; at least 60% of people aged 25-64 should participate in learning activities each year; and the number of people at risk of poverty or social exclusion should decrease by at least 15 million compared to 2019.