The European Council in 2013

FEBRUARY 2014

doi:10.2860/73472

ISSN 1977-3110

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The European Council in 2013

FEBRUARY 2014

This publication is produced by the General Secretariat of the Council.www.european-council.europa.eu Luxembourg: Publications Office of the European Union, 2014

ISBN 978-92-824-4160-2doi:10.2860/73472ISSN 1977-3110© European Union, 2014Reproduction is authorised provided the source is acknowledged.Printed in BelgiumPRINTED ON ECOLOGICAL PAPER

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The European Council in 2013 by the President of the European Council, Herman Van Rompuy

Towards recovery 5

A stronger eurozone 6

Growth and jobs 10

The Union in the world 15

Democracy and interdependence 19

Renewal ahead 23

Conclusions of the European Counciland statements by Heads of State or Government 25

Table of contents

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The European Council, December 2013

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For Europe, 2013 was a year of ‘in-between’ – after the violence of the storm, but before the darkest clouds had cleared. The exhausting years of firefighting were starting to pay off: market tensions abated during the year, and we could safely say that the existential threats from the financial crisis were now firmly behind us. But our countries were and still are caught in a deep economic crisis, with employment and growth as the main concerns. So we focused our work on accelerating the movement towards economic recovery.

The European Council in 2013 covers the institution’s activities in the past year. Throughout the year the battle for jobs was clearly at the top of the leaders’ agenda. But we also further strengthened the Economic and Monetary Union – with new steps for the banking union –, decided the EU budget for the rest of the decade, and focused on strategic relations with global partners and neighbouring countries, in particular Ukraine.

Our institution brings the European Union’s top leaders around the table: the 28 Heads of State or Government, the President of the Commission, and the President of the European Council. Our task is to set the Union’s strategic course. We establish political priorities and take responsibility in crisis situations. Our meetings start with an exchange with the President of the European Parliament. The EU High Representative participates in all foreign affairs discussions and we are regularly joined by the head of the European Central Bank on economic matters. European Council meetings are events where things happen and decisions are taken; they are also part of a process, and the mere prospect of them triggers preparations and sets things in motion across the Union.In the course of 2013 we welcomed new colleagues, and said goodbye to former ones, after government changes in Bulgaria, Cyprus, the Czech Republic, Italy, Luxembourg, Malta and Slovenia. In all we held six formal European Council meetings and one eurozone summit – a pace that in itself confirms that we have entered calmer waters.

Half-way through the year, we had the pleasure of welcoming Croatia as the twenty-eighth member state of the Union, while with other countries in the region, not least Serbia, we are ready to negotiate. A strong reminder of that other common goal: that we are working jointly, not just for the prosperity of European citizens, but also to cement peace among European states.

Towards recovery

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be a process in stages. Moving from an unsustainable starting-point to a solid end-point is in a way a matter of bridge-building.

Banking unions come in three parts – supervision of participating banks, resolution for failing banks and customer deposit guarantees. On supervision we are very close to the other side of the bridge. Concluding the setting-up phase, in late 2013 Danièle Nouy was appointed chair of the single supervisory board, while the European Central Bank, as incoming supervisor, kicked off the preliminary health-check of all banks. The Single Supervisory Mechanism will be up and running in November 2014.

Politically, reaching an agreement on bank resolution was the main task for 2013. Once supervision of banks becomes European, you simply cannot leave bank failures to be dealt with nationally. At our last meeting

In 2013, the overriding objective was no longer to safeguard the eurozone’s stability, but to unlock and shorten the path to economic recovery in the Union as a whole. This entailed work on four simultaneous fronts. The first was preserving financial stability – and although the acute crisis calmed down, the year still saw moments when rapid action was needed, in particular in relation to the Cypriot banking system. The second front focused on continuing to strengthen the foundations of our Economic and Monetary Union. The third was to improve the resilience of our economies, through sound and sustainable public finances and improved competitiveness. And the fourth and last front – particularly urgent given the social distress – was the fight against unemployment, through immediate and targeted measures.

This overall strategy guided the economic decision-making by European Council members throughout the year. At some stages we concentrated on a particular element, at others on another, but we made sure that none were neglected. Leaders are all fully aware that all the elements are interlocked and that short-term and long-term action cannot be addressed separately. Take all our work on setting up the banking union for instance: not only is it aimed at strengthening the architecture of the monetary union, but – in a situation where a credit drought in certain countries hindered economic recovery – it also became an integral part of our fight for employment.

Dealing with banks

When the European Council decided, back in June 2012, to move from a patchwork of national banking frameworks to a banking union, we knew this would

Around the table of the European Council

A stronger eurozone

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confidence in public finances, very visible in lower ‘spreads’ compared to previous years. Between 2009 and 2013, public deficits across the eurozone have more than halved on average. Fiscal consolidation was never a goal in itself, but a means to bring back growth and jobs on a sustainable basis.

Nevertheless a debate on the common budgetary strategy for our 28 economies heightened in the spring of 2013. But to me and to all the members of the European Council, the ‘austerity versus growth’ debate was and is a false dilemma. Who could possibly be against economic growth, but it is not with more public or private debt that you can solve a debt crisis. The fact is that some countries faced no other choice than to restore their financial credibility.

The real debate – which we had at our meetings in March and June – is about the timing and sequencing of consolidation efforts. It is for each country to find the right pace and balance to bring down its deficit and debt, but in doing so it is vital for each always to take the effects on the whole area into account. Our common EU rules precisely allow countries to focus on structural, not just nominal, fiscal targets. As we underlined again in March, the possibilities exist – whether in the Stability and Growth Pact or in the ‘Fiscal Compact’, which entered into force on 1 January 2013. Direction matters more than speed.

In March and June, the leaders also addressed the social dimension of the Economic and Monetary Union, for instance by emphasising the value of social

in 2012, we had set ourselves a firm deadline: an agreement on resolution before the end of 2013. Although this was steered mostly by finance ministers, the European Council kept a close eye all along, taking stock of progress during most of our meetings. In December 2013 – once again, late in the night immediately preceding the European Council – the Single Resolution Mechanism, including the Single Resolution Fund, was agreed by finance ministers. Looking ahead, the finalisation with the European Parliament should be achieved before the end of its legislative cycle in the spring of 2014.

As regards customer deposit protection, a new directive was agreed in December which will provide harmonised deposit guarantee schemes in all member states. So on all three parts, the bridges are ready or under construction, and we are set to cross soon. The magnitude of this achievement, within just eighteen months since the decision to create a banking union, should not be underestimated. For the eurozone, it is the biggest leap forward since the creation of the euro itself; and by EU standards, it is happening with the speed of light.

Debating budgetary matters Getting public debts and deficits under control was a key element in laying the storm of the financial crisis to rest. Since 2010, fiscal rules have been strengthened in various ways, and eurozone countries in particular have started to coordinate their budget cycles more intensely. This work has played no small part in restoring

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the work of strengthening the Economic and Monetary Union. One avenue is to develop partnerships between national governments and EU institutions to stimulate reforms for growth, jobs and competitiveness. As this was still uncharted territory, we identified in June a set of principles (such as the need for strong national ownership) and agreed on the objectives. At our December meeting, the leaders took up the discussion and agreed on the nature of the partnerships – to be based on a system of mutually agreed contractual arrangements and associated solidarity mechanisms – but did not manage to reach a consensus on all the aspects. The European Council will therefore revert to the issue in the autumn of 2014.

Some European Council meetings are significant for not having taken place. Last year’s financial turmoil in Cyprus stood out in this respect. Due to the exposure of its banking sector to the situation in Greece, the country was for months on the brink of a major financial crisis. Leaders, concerned of course, left the matter to their finance ministers. When turmoil finally broke out, in March 2013, the eurozone ministers negotiated a ten billion euro rescue package with the Cypriot government. The terms of the agreement – which affected both local savers and wealthy foreign depositors – were rejected by the Parliament in Nicosia a few days later, resulting in political deadlock and uncertainty. Convening a European Council in full on Cyprus at a few hours’ notice was a crisis measure I preferred to avoid. While staying in close contact with other members, I organised a meeting in Brussels with the new President of Cyprus, Nicos Anastasiades, the presidents of the Commission, the European Central Bank and the Eurogroup, and the Managing Director of the International Monetary Fund. It was in this setting, shortly before midnight on Sunday 24 March, after a full day of sensitive discussions, that we reached a solution. This agreement was then discussed and endorsed by the finance ministers.

For the European Union, this was not the most glorious of episodes. However, the financial markets reacted in a relatively subdued manner. It was a clear sign that the phase of excessive volatility is over. Clearly, the message that European leaders would do “whatever it takes” to safeguard financial stability has got through. Three months later, the confirmation that Latvia would be joining the eurozone from January 2014 was a further confirmation of trust in the Economic and Monetary Union.

and employment indicators. We stressed the need for a constructive social dialogue. For part of the June European Council, we were joined – and this was a first – by the European social partners, who represent large businesses and SMEs, public services and trade unions.

Encouraging economic reformsAs part of the ‘European semester’, leaders regularly shared their experience of pushing through difficult economic reforms. Reforms are happening all across Europe, not least in the countries most under pressure from the crisis, and the first fruits are clearly there. The fact that the growth gains are largely export-led is a good sign of improving competitiveness.

This is positive news for all. With the crisis we discovered clearly that what happens in one country can affect all. National choices to reform or adjust do not take place in a vacuum: all countries have neighbours, trading partners, currency-companions. Because the eurozone especially is more than just the sum of its parts, interdependencies matter. Measures that might make sense for a particular country considered in isolation may not have exactly the same impact in the wider context. Looking at the overall picture is key, and it is also what the European Council is for.

In the course of the year we discussed new means to encourage national economic reforms, as part of

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Discussions at the European Council

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hosted in Berlin by Chancellor Merkel in July and by President Hollande in Paris in November. Throughout the year, at several European Councils, leaders agreed EU-wide actions: promoting vocational training, high-quality apprenticeships, or cross-border mobility through the EURES job portal and the Erasmus+ programme, and bringing all partners on board – from schools, social organisations and local authorities, to businesses big and small.

From March to December, we worked together with the European Investment Bank on overcoming financial fragmentation in weak economies and improving credit access for SMEs. The €10 billion capital increase decided in 2012 by the European Council enabled the Bank to step up its lending by 38 percent, to €62 billion in 2013 – financing projects for growth and jobs across the Union.

Competitiveness in the digital age

New competitors, an aging population, de-industrialisation, technological revolutions ... such challenges affect every one of our countries, to different degrees but with no exception. Euro or no euro, Union or no Union, they need to be addressed. Which is why I have insisted on placing a strong emphasis on Europe’s competitiveness, at each and every European Council meeting.

Our countries cannot lose sight of the longer-term trends behind some immediate challenges. Take high energy prices for instance, which weigh hugely on companies and consumers across Europe. Without a genuine European single energy market, our member states are not likely to compete well in a world where Europe is bound to become the only continent dependent on energy imports – the shale gas revolution

As the year came to a close, growth was finally returning – timidly but for real. But there is a natural time lag between the return of growth and that of employment. So speeding up job creation remained the number one priority for the European Council in 2013.

The battle for jobs

In too many countries, five years of low growth or recession have taken a devastating toll on employment. To leaders, it has become very clear in recent years that joblessness throughout the Union is a common concern, and that fighting it is a joint responsibility – economically, socially, politically. This is especially true for youth unemployment, which has soared to unacceptable levels – resulting in a tragic waste of talent and energy.

In terms of employment measures, naturally national governments are the first in line. But we ensured in the European Council that EU means were in place to back national actions. In February we set aside sizeable funds for that specific purpose in the Union’s next seven-year budget: €6 billion (later increased to €8 billion with the European Parliament). Most of these funds will be released by 2015. This Youth Employment Initiative will help the worst affected member states roll out their national youth guarantee schemes – a series of measures to ensure that every young person gets a good offer of a job, education or traineeship within four months of leaving school or becoming unemployed. Drawing on Finland and Austria’s success with such schemes, all member states committed in April to setting up youth guarantee action plans in their own countries.

The presidents and prime ministers have followed this closely, including at the youth employment conferences

Growth and jobs

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Press statements following the Paris Youth Employment Conference, November 2013

Leaders and employment ministers at the Berlin Youth Employment Conference, July 2013

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Whilst we used to lead worldwide on all things digital, our economies are now lagging behind. This concern could be clearly felt around the table last October, at our ‘digital’ European Council. We agreed on a number of measures to connect the continent and boost a digital catch-up that would greatly benefit business. Beyond infrastructure and regulations, this is also about skills: the jobs of the future will all be digital, or at least in part, and by 2015, there may be 900,000 unfilled IT vacancies in Europe. So in October, we doubled the resources for digital (re)training, and launched an EU-wide coalition for digital jobs.

At the same summit leaders insisted on the need to nurture innovation and entrepreneurial skills in our societies, and to help research and ideas translate into global commercial successes. It so happened that the week before in Munich, the European patent office had been celebrating its 40th anniversary, as well as the new

in the United States is only one of the game-changers. So in May, the European Council dedicated an entire meeting to this issue, taking decisions to bring down energy barriers, widen energy choices and cut energy costs for companies and households.

Apart from energy, too many other sectors of the single market still fall short. Not least on services, the digital economy, the telecom sector and transport infrastructure – all areas where breaking down barriers would make a significant difference. To help boost the benefits for businesses, single market rules should be light and fit for purpose – this is a matter of common sense for all European Council leaders, and one that we recalled on several occasions this year. The purpose of joint rules is precisely to reduce red tape; when we get it right, it’s twenty-eight sets of rules out, and one in. A level playing field for all.

Paradoxically, when it comes to the online and telecom economy, Europe is still a truly fragmented market.

First semester of 2013, while Ireland holds the rotating presidency of the Council of ministers of the EU

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own country and citizens, which is perfectly legitimate. But the important thing for me was that we secured a good deal for Europe as a whole: a modernised, realistic budget, focussed on the most pressing needs and geared to the future.

This agreement in February required the unanimous consent of all twenty-seven leaders at a time of belt-tightening in all our countries. Just like everywhere else in Europe, much of the focus had to be on doing more with less money, and ensuring that each euro would achieve the most impact. Still, it was essential not to miss the opportunity to give the maximum impetus to jobs and growth across the continent. With the strong involvement of the European Commission and its president José Manuel Barroso, we eventually achieved a 40% increase on innovation and competitiveness, immediate measures against unemployment, and the safeguarding of international development aid from cuts. A final deal, steered by the Irish Presidency of the

single EU patent, the long awaited breakthrough which will soon be driving down innovation costs EU-wide.

Investing for the futureThe European Union’s main tool for joint action for growth and employment is its one trillion euro budget. These budgets are allocated for seven years and in the winter of 2013 we had to decide on the budget for the period up to 2020. Though limited in size compared to national budgets (at 1% of our combined GDP), as it is mainly an investment budget, it can still have a substantial impact on growth.

Traditionally the three main questions – How big the pot? Whence the money? Whither the spending? – are set by European Council leaders. In two dedicated meetings – an opening game in November 2012 and a decisive 24-hour, non-stop summit in February 2013 (my longest ever) – I brokered the final deal between the leaders. Of course, each tried to get the best deal for their

Second semester of 2013, while Lithuania holds the rotating presidency of the Council of ministers of the EU

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allowing us to step up the fight on this sensitive issue at our meeting in May. Around the table there was no doubt that only combined action would win the global battle against tax fraud and tax evasion – a message forcefully put a few weeks later to the Lough Erne G8 by its host David Cameron. Changes have been set in motion, and I am confident they will bring further progress in the year ahead.

Council of ministers, was reached with the European Parliament by the summer, allowing the use of the funds from the very start of the budget period.

In times of fiscal consolidation, when public funding is under pressure, fairness becomes even more crucial for citizens. Yet every year in Europe staggering sums go amiss due to tax fraud and tax evasion. In the wake of several national scandals, unusual momentum built up

Munich, 40th anniversary of the European Patent Office, October 2013

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anniversary of the Arab spring, leaders took stock of Europe’s support to the democratic transition in the region. Recent events in Egypt – a country which I visited myself in early January 2013 – had underlined once more how these transitions can be challenging. A shared neighbourhood, a shared responsibility.

A shared border, too, implies a shared responsibility. Never had this become so clear as after the tragic death of hundreds of asylum-seekers off the coast of Lampedusa in the Mediterranean in early October. The event shocked the European public. When the leaders met shortly after, we called for determined action to prevent the loss of lives at sea. To avoid such tragedies happening again the European Union must continue to work with countries of origin and transit to address the root causes of irregular migration flows – guided by the three principles of prevention, protection and solidarity. In December the European Council discussed the report of the Taskforce for the Mediterranean, as a prelude to further action.

In May I visited Turkey, a candidate country, and invited Prime Minister Erdogan to Brussels. The Turkish call for a solid relationship with the European Union was clear. Even if the country’s internal situation has known tense moments since then, the accession talks – in which a new ‘chapter’ was opened in the autumn – remain an important driver of reforms..

International meetings

Throughout 2013, the dramatic situation in Syria was always on our minds, from debates on the arms embargo in the spring to the process leading to the Geneva II peace conference at the end of the year. There were some heated moments in the margins of the G20

Euro Maidan

No doubt the year’s most momentous events from a European perspective unfolded at the end of the year, on Kiev’s ‘Maidan’ independence square. In November, ahead of the EU summit with our Eastern neighbours in Vilnius, we had been very close to signing an Association Agreement with Ukraine, which would have brought the country politically and economically closer to Europe. At the Vilnius summit, prepared in close cooperation with the Lithuanian Presidency of the Council, we made significant progress on similar agreements with Georgia and Moldova. But the Ukrainian leadership stepped back at the last moment, preferring instead closer ties with Russia – a decision that triggered huge protests throughout the country. By early 2014 these had resulted in a deep political crisis, and an escalation of violence and killings.

As I write these lines – with Ukraine’s political destiny still in the balance – Europe’s offer of a closer association is still there. The conditions were almost fulfilled. The people of Ukraine have courageously made clear their will to live in a free, independent and united country with strong ties to the European Union. Time is on their side.

Shared responsibility

Whereas five years ago, to exaggerate somewhat, Ukraine was seen as of interest to Eastern Europe alone, today all leaders – from Portugal to the Netherlands or Ireland – are well aware that events in Kiev are a matter of common concern. Likewise, all now realise that turmoil in North Africa does not only impact on Italy, Malta or Spain, but on the whole of Europe. In the February European Council, on the two years’

The Union in the world

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in St Petersburg, followed by a strong joint position of the 28 foreign ministers in Vilnius. The Union remained committed to the principle of a political solution. We reaffirmed the European Union’s full engagement in UN efforts to bring an end to the intolerable violence and to bring all parties to the negotiation table. Successful talks could even trigger a wider positive dynamic in the region – an issue I addressed on the Union’s behalf in my speech to the UN General Assembly in September. Meanwhile, the European Union continues to lead humanitarian efforts in Syria, with a total of over €2.6 billion mobilized, and is providing strong support for the Organisation for the Prohibition of Chemical Weapons in the destruction of Syrian chemical stockpiles.

Europe’s improved internal economic situation was reflected externally. For the first time since 2010, the eurozone was no longer a target at G8 or G20 meetings. At the Saint Petersburg G20 summit in September, the euro was hardly mentioned. In the margins of the Lough Erne G8 in June, together with President Obama, we launched transatlantic free trade negotiations – a promising and powerful enterprise likely to create hundreds of thousands of jobs on both shores of the Atlantic. The European Union is also closing a deal with Canada, and working on agreements with Vietnam, India, Indonesia, Mercosur and Japan.

The European Council followed very closely the US intelligence allegations and related data protection concerns that surfaced in the course of the year. It was an issue we discussed extensively when we met in October and opened a joint initiative for bilateral talks with the US, open to all member states.

In January 2013, the summit between the community of Latin American and Caribbean states and the European Union brought dozens of leaders to Santiago de Chile at the foot of the Andes mountains. In the course of the year, the European Union held a bilateral summit with Russia – a challenging relationship which we discussed extensively at the March European Council – as well as with China, Japan, South Africa, Brazil, the Republic of Korea and other strategic partners.

DefenceThe last European Council of the year was largely devoted to the theme of defence – both its security and its industry and jobs aspects.

It was the first in-depth discussion at our level of the subject since 2008. Our countries are expected to assume stronger responsibility for the security of our wider region, at a time of widespread budget constraints. At our December 2012 meeting, we had set preparatory work in motion on three strands: on defence capabilities, on the defence industry and on our EU joint operations. Joined at first by the Secretary General of NATO, we agreed on concrete steps on all three. The main point of our discussions was to identify ways and means – for those member states that want to take part – to cooperate better around defence assets; on developing, acquiring, using, and maintaining assets such as drones, air-to-air refuelling systems or next-generation satellite communication. Long-term investments can help create momentum, for innovation, for technology, also with wider benefits – not least in terms of jobs. On common security and defence policy our aim was to act better and faster when we intervene together, in military and also in civilian operations – and to improve the system of financing. The European Council will assess concrete progress on all these issues in June 2015.

The year 2013 also saw renewed European engagement in Africa. Security and development issues in the Sahel and Sahara region impact directly on our own security. The European Union supported French-led peacekeeping efforts to avert a terrorist take-over in Mali and to stop a civil war in the Central African Republic. In the latter, we are contributing 50 million euros to the African peacekeeping mission and providing 60 million euros in humanitarian aid for a suffering population. At its December meeting, the European Council asked High Representative Catherine Ashton to plan for a Bangui-based EU mission in 2014.

This demonstrates how important it is for European countries to have appropriate response capabilities and means of coordination in place, so that we can live up to our responsibilities when the need arises.

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Summits and encounters with third countries

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Latin American, Caribbean and European leaders at the CELAC-EU meeting , Santiago de Chile, January 2013

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conviction. Because around the table there is a common conviction that, despite the pain and difficulties, Europe will emerge stronger and more resilient from this crisis.

A double legitimacyIn our democracies, the final say belongs to citizens. Faced with far-reaching European decisions affecting their daily lives, they must have a voice, a vote. The intricate set-up of our Union – itself a reflection not of bad will or design flaws, but mostly of Europe’s diversity and of inbuilt checks and balances – means there are no miracle solutions. There will always be tensions between democracy and interdependence, between a country’s free choices and its membership of the Union. In handling these tensions, there is room for improvement.

The debt crisis determined the way European leaders and institutions have worked together in recent years. New practices evolved, relationships and balances shifted, and in the process new questions emerged regarding the public legitimacy of joint decisions. Given its nature, the crisis required a combination of European and national political responses – be it joint EU decisions, individual countries’ reforms, or national taxpayers’ money mobilised for European crisis funds.

As a general rule, accountability for national decisions is exercised through national parliaments, while accountability for European decisions is ensured jointly by the European Parliament and the Council, whose ministers are accountable to national parliaments – a double safeguard, but a dual complexity.

Yet the rule of thumb that accountability should lie at the level at which decisions are “taken and implemented”

The past four or five years have taken their toll on the European idea. Difficult and unpopular decisions have had to be taken to come out of the crisis; in the process, the EU institutions have also been forced into new roles to help prevent a repetition. As the May 2014 European elections approach, we must recognise that public disenchantment with the Union is a matter of great concern.

Results and convictionIn the end, people will be best convinced by results: by the return of growth, by the creation of jobs, by visible signs that the work that societies and governments are doing – individually and jointly as a Union – is paying off. And since unemployment is people’s main concern throughout Europe, the return of employment is the real test. In this respect, leaders did all they could in 2013 to prepare the ground for this to happen in the year ahead.

In any event, convincing people that Europe is part of the solution is not a matter of economics and economic results alone. Words matter too. It is important to tell the truth, and one such truth is that there are no quick fixes and that reforms geared to growth and jobs take time. Another is that the ultimate answer to the crisis does not lie in new financial instruments or a return to national currencies, but in real changes in the real economy. Political leaders must set out clearly what is at stake.

Today, with European and national decision-making more intertwined than ever before, such messages cannot only come from ‘Brussels’ but entail a responsibility for national leaders too. In European Council meetings, I often urge colleagues to defend what we achieve back home; not half-heartedly, but with

Democracy and interdependence

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European and international media awaiting the arrival of Heads of State or Government

does not provide all the answers. Sometimes a decision is taken politically at one level and implemented at another – for instance, the decision to wind up a bank in Cyprus in March 2013. In such cases, it makes sense to have a kind of double democratic control.

There are both national and European stakes in ensuring that each country’s economy remains fit for the future. The Union is as strong as its weakest link. But in thinking about democratic legitimacy it is essential to avoid the unproductive ‘either/or’ approach – either the

twenty-eight national parliaments, with as many vetoes, or the European Parliament, with its own political constraints. When it comes to economic matters that are central to national political life and also crucial to the common good, we need a double legitimacy. Since the two do not fit easily in a hierarchical relationship, this requires political dialogue and coordination between the European and the national levels of democracy. In this field much can be improved, on both sides of the equation, in the coming years. It will help cement public support for the Union.

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Behind the scenes at the European Council

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host two continent-to-continent summits – with Africa in Brussels in April and with Asian leaders in Milan in October – and nations across the world commemorate the outbreak of the First World War.

Politically, the May 2014 European Parliament elections will be the highpoint of the year. A time to debate among citizens, look back on the years of acute financial crisis now behind us, and chart a common course ahead. Never has it mattered as much to make the case for Europe.

The year 2014 will be a year of consolidation and a year of change. Even if for the Union the European elections late May will open a new political cycle, the work must continue throughout the whole year to stimulate job creation, strengthen the eurozone and improve competitiveness. Economic recovery must gain ground.

From January, the 2014-2020 EU budget will start rolling out, also for the Youth Employment Initiative, Erasmus+ and the world’s largest research programme Horizon 2020. Over the spring the political priority will be to finalise the banking union before the end of the current legislature. There will be no time to loose.

Close to home and worldwide, the fast-moving developments in Ukraine will require our full attention, as will the situation in the wider Middle East and the global economic situation. 2014 will also see Europe Herman Van rompuy

Renewalahead

Conclusions of the European Council

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European Council — 7– 8 February 2013 27Multiannual Financial Framework 30

European Council and Euro Summit —14–15 March 2013 49Rules for the organisation of the proceedings of the Euro Summits 53

European Council — 22 May 2013 55

European Council — 27–28 June 2013 58

European Council — 24–25 October 2013 63

European Council — 19–20 December 2013 69

Conclusions of the European Council and statements by

Heads of State or Government

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I. TRADE1. Enhancing sustainable growth and jobs is a key priority

for the EU. Trade in goods and services and investment can make a significant contribution in this respect. It is estimated that an ambitious trade agenda can lead in the medium term to an overall increase of 2% in growth and to the creation of two million jobs. To get the most out of trade, the EU must develop the right domestic policy framework to support competitiveness, open up trade in services, strengthen the industrial basis in Europe and enhance Europe's place in global value chains.

2. In order to better use trade as an engine for growth and job creation, the European Council reiterates the EU's determination to promote free, fair and open trade whilst asserting its interests, in a spirit of reciprocity and mutual benefit. The EU trade agenda will promote EU standards and international regulatory convergence. The EU remains fully committed to a strong, rules-based multilateral trading system. It is of the utmost importance to fight all forms of protectionism, including as regards non-tariff trade barriers, ensure better market access, promote appropriate investment conditions including as regards its protection, enforce and promote intellectual property rights and open up public procurement markets. Work is under way on the proposal on access to public procurement markets.

3. The EU will ensure the effective and robust enforcement of its rights under existing rules, including through the recourse to the WTO's dispute settlement system and to its own trade defence instruments where appropriate. The European Council looks forward to the next Commission report on trade and investment barriers.

4. The EU remains committed to the successful conclusion of negotiations within the WTO's Doha Development Agenda (DDA). This requires efforts from all participants in the negotiations, in particular from large emerging economies. In the short term, it is important for progress to be made towards a multilateral agreement on trade facilitation, as well as on other aspects of the DDA, by the time of the December 2013 WTO Ministerial Conference in Bali. Such progress would benefit the world economy and inject new momentum into the DDA negotiations more broadly. The EU is ready to begin a ref lection, in cooperation with partners, on the post-Bali WTO agenda, including the DDA.

5. Plurilateral and sectoral agreements can contribute to the EU's growth agenda. The EU looks forward to forthcoming negotiations on services and to the early completion of the review of the Information Technology Agreement. Further progress is required towards liberalisation of trade in environmental goods and services

as a positive contribution to moving towards a resource-efficient, greener and more competitive economy.

6. While the EU remains committed to the further development of the multilateral trading system, its immediate focus is on developing its bilateral trade relations. These can and must make a positive contribution to the multilateral system. By building on WTO rules and by going further and faster in promoting openness, the EU's bilateral agreements will help to clear the way for further progress at the multilateral level.

7. Building on the tangible progress made in recent months in the EU's bilateral trade agenda, all efforts should be devoted to pursuing agreements with key partners, prioritising those negotiations that will provide most benefit in terms of growth and jobs. In particular, the European Council:

(a) looks forward to the report of the EU-US High Level Working Group on Jobs and Growth and its recommendations. The European Council calls upon the Commission and the Council to follow up on these recommendations without delay during the current Presidency. It reiterates its support for a comprehensive trade agreement which should pay particular attention to ways to achieve greater transatlantic regulatory convergence;

(b) looks forwards to the launch of negotiations with Japan at the forthcoming EU-Japan summit further to the adoption of the negotiating mandate in late 2012;

(c) expects the negotiations with Canada to be concluded very shortly;

(d) stresses that, regarding Russia, in the short term the priority must remain implementation of its commitments stemming from its accession to the WTO. Negotiations on a comprehensive New Agreement require further progress;

(e) notes that the EU's agenda with China is broad and ambitious. Priorities in the short term should focus on investment, market access, procurement and intellectual property rights, and be based on a constructive and strategic engagement. Both sides have committed themselves to an early start to negotiations on a substantial investment agreement;

(f) recalls that negotiations with key emerging economies are important for the EU:

– negotiations with India require further efforts; – further to the conclusion of the negotiations with

Singapore, trade relations with other ASEAN countries should be deepened;

– the commitment of the EU and MERCOSUR to work towards exchanging market access offers no later than the last quarter of 2013 is welcome.

EUROPEAN COUNCIL — 7– 8 FEBRUARY 2013

CONCLUSIONS

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making greater efforts towards democratic reforms receiving more support. This includes:

(a) assistance for democratic transformation, the development of civil society, the rule of law, human rights, gender equality and increased transparency and efficiency in electoral processes, including through the provision of technical advice and cooperation and the deployment of electoral observer missions;

(b) enhanced cooperation in the area of freedom, security and justice, in particular through the dialogues on migration, mobility and security and the development of mobility partnerships as well as through support in addressing the rule of law, security sector reform and border management challenges;

(c) promotion of shared economic prosperity, including by contributing to macroeconomic stability, promoting economic reforms and an appropriate climate for business and investment and maintaining momentum on Deep and Comprehensive Free Trade Agreements, thus multiplying the possibilities for commercial exchanges and growth;

(d) people-to-people contacts, in particular as regards promoting exchanges between young people in the EU and in the Southern neighbours, notably in the framework of the Erasmus Mundus programme. Particular attention should be given to promoting the employability of young people and women. The Commission will in particular provide assistance and expertise to improve the quality of education and vocational training, to further increase student exchanges, to develop policy dialogue on education, employability and vocational training and to stimulate youth exchanges;

(e) enhanced cooperation in a wide range of fields such as research, entrepreneurship and SMEs, agriculture, transport, including aviation and maritime services, environment, climate change, energy, telecommunications, administrations' capacity-building, culture, and sharing of knowledge and expert exchanges on transition processes.

13. Joint task forces have been established with some of these countries to ensure that the EU's approach is comprehensive and consistent. It is also important to ensure more synergies and coordination between the support brought by the EU, its Member States and other actors.

14. This overall reinforced commitment has involved the provision of additional funds and macro-financial assistance to the countries in transition. The EU will make every effort to support reforms and respond to the individual needs of these countries, in the short as well as in the medium and long term. The EIB is invited to continue to step up its support for investment into the private sector, infrastructure and climate change in the region.

15. It is also necessary to explore further ways to enhance the political dialogue, including dialogue at the highest level, with those countries in transition towards democracy, and

8. The European Council also calls for progress as regards:(a) the Association Agreements including DCFTAs with the

Republic of Moldova, Georgia and Armenia with a view to their finalisation by the time of the Eastern Partnership Summit in Vilnius. The European Council reaffirms its commitment to the signing of the agreement with Ukraine, in full compliance with the Council conclusions of 10 December 2012;

(b) the start of negotiations on Deep and Comprehensive Free Trade Agreements with Morocco and rapid progress towards the negotiations with Tunisia, Egypt and Jordan;

(c) the development of a renewed partnership with the African/Caribbean/Pacific countries through the conclusion of Economic Partnership Agreements.

II. EXTERNAL RELATIONS

Arab Spring9. Europe and its Southern Mediterranean partners share

a common neighbourhood and are bound by common interests and concerns. The EU is fully resolved to engage in a mutually beneficial partnership, aimed at establishing an area of shared prosperity, closer political association and progressive economic integration, and based on adherence to universal values, such as democracy, respect for human rights, the rule of law, and gender equality. Civil society has an important role to play in the transition to democracy. The development of this partnership should be achieved through a wide range of instruments and requires the long term commitment of both sides.

10. Momentous changes have taken place in the region in the last two years, with the important moves towards democracy achieved in the wake of the Arab Spring. In several countries democratic elections have been held for the first time and the basic foundations of democracy are being progressively introduced. The EU strongly supports these processes and calls on the governments, as well as political and social forces in the countries concerned, to continue their efforts to develop stable and well-grounded democracies beyond the electoral processes, which should be free and fair, and to develop inclusive processes based on dialogue.

11. This process of transition towards democracy will take time and has to take into account the political and social realities of the local societies involved, but it needs to be clearly based on the promotion and protection of human rights, fundamental freedoms and the rule of law. Many of the countries in the region are, at the same time, facing considerable socio-economic challenges that need to be tackled urgently both in order to place their economies on a sound footing as a basis for recovery and to help consolidate democratic transition.

12. The EU has been fully committed to this new Partnership in a spirit of co-ownership since the beginning of the Arab Spring and is determined to further enhance its support for democratic and economic transition processes in the region, based on a differentiated approach, with countries

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In this regard, it notes that the Council will assess and review, if necessary, the sanctions regime on Syria at its next meeting ahead of its March deadline.

Mali18. Recalling the Council conclusions of 31 January, the

European Council welcomes the decisive action taken by the Malian armed forces, especially supported by France, other EU Member States, and countries of the region, to restore the country's territorial integrity and the authority of the Malian state. The EU is committed to bringing financial and logistic support to the accelerated deployment of the African-led International Support Mission in Mali. The adoption of the roadmap for transition by the Malian National Assembly is a fundamental step towards the restoration of democracy, constitutional order and civilian control over the armed forces in Mali and should be urgently implemented. This allows the gradual resumption of European development cooperation in order to respond swiftly to Mali's priority needs. The EU stands ready to support the implementation of the roadmap, including through support to the electoral process. It is crucial to restore an inclusive national dialogue open to the populations of the north and to all groups which reject terrorism and recognise the integrity of the country. The Malian authorities should take all the necessary measures to prevent further human rights violations and to fight impunity. The imminent launch of the European Training Mission and the swift deployment of observers will help contribute to strengthening civilian authority, respecting international humanitarian law and promoting human rights. The European Council welcomes the outcome of the meeting of the Support and Follow Up Group on the situation in Mali of 5 February which added political momentum to the implementation of the roadmap.

III. MULTIANNUAL FINANCIAL FRAMEWORK

19. The European Council reached agreement on the next Multiannual Financial Framework as set out in document 37/13.

to promote synergies with regional initiatives such as the Union for the Mediterranean and the "5+5 Dialogue". The EU will also support efforts towards more regional integration. The European Council welcomes the communication on supporting closer cooperation and regional integration in the Maghreb.

16. The European Council calls on EU institutions, Member States and Mediterranean partners to maintain a high level of effort and commitment. It invites the High Representative and the Commission to keep relations with the Southern Neighbourhood under review. It invites the Council to evaluate the effectiveness of the EU's policies and instruments in assisting the political and economic transition of the region and to report back by June 2013.

17. The European Council deplores the appalling situation in Syria, which remains the most worrying among the countries whose societies were mobilised in the Arab Spring. It calls for an immediate end to violence and expresses its concern over the widespread and systematic violations of human rights and international humanitarian law, for which the Assad regime carries the primary responsibility. It reiterates its support for the efforts of Joint Special Representative Brahimi to achieve a political solution. It expresses its support for the Syrian population's aspirations and for the Syrian National Coalition as legitimate representatives of the Syrian people, and stresses the need for a political transition towards a future without Assad and his illegitimate regime. The EU will mobilise its resources so as to lend its full assistance to the consolidation of peace and the establishment of democracy. It will continue to provide humanitarian aid and other civilian support to the Syrian population. In this context and in light of the humanitarian emergency situation, the European Council welcomes the significant pledges made at the Kuwait donor conference, encourages Member States and the Commission to further increase their respective contributions and calls on all parties to the conf lict to facilitate humanitarian access. The European Council recalls its tasking to the Council in December to work on all options to support and help the opposition and to enable greater support for the protection of civilians.

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GENER AL1. Over recent years the European Union and its Member States have taken important steps in response to the challenges raised by

the economic and financial crisis. Looking to the future, the next Multiannual Financial Framework (MFF) must ensure that the European Union's budget is geared to lifting Europe out of the crisis. The European Union's budget must be a catalyst for growth and jobs across Europe, notably by leveraging productive and human capital investments. Within the future Multiannual Financial Framework, spending should be mobilised to support growth, employment, competitiveness and convergence, in line with the Europe 2020 Strategy. At the same time, as fiscal discipline is reinforced in Europe, it is essential that the future MFF ref lects the consolidation efforts being made by Member States to bring deficit and debt onto a more sustainable path. The value of each euro spent must be carefully examined ensuring that the European Added Value and quality of spending under the future MFF are enhanced not least by pooling resources, acting as a catalyst and offering economies of scale, positive trans boundary and spill-over effects thus contributing to the achievement of agreed common policy targets more effectively or faster and reducing national expenditure. Sustainable growth and employment will only resume if a consistent and broad-based approach is pursued, combining smart fiscal consolidation that preserves investment in future growth, sound macroeconomic policies and an active employment strategy that preserves social cohesion. EU policies must be consistent with the principles of subsidiarity, proportionality and solidarity as well as provide real added value.

2. The future financial framework must not only ensure the appropriate level of expenditure, but also its quality. The quality of expenditure will allow for a better development of the policies, taking full advantage of the opportunities they provide in terms of European value added, in particular in times of heavy constraint on the national budgets. All funding instruments should, therefore, be spent as effectively as possible. Efforts towards improving the quality of spending of the Union's funds need to include, inter alia, the better governance of the policies including certain conditionalities, concentration and targeting of funding, wherever possible in all funding instruments and programmes under all Headings, on areas that contribute most to growth, jobs and competitiveness. Regular reporting for the appraisal of results on all policies and funding instruments at political level should be ensured. In addition, elements ensuring the appropriate quality of expenditure must include f lexibility, positive incentives, concentration of funds on growth-enhancing measures, evaluation and review, emphasis on results, simplification in delivery, appropriate technical assistance, application of competition principle in selecting the projects, and an appropriate use of financial instruments. The conclusions include a number of elements that provide for the application of the above principles. Furthermore, every effort should be made by all institutions of the Union so that the sectoral legislation of relevant funding instruments includes provisions aiming at enhancing the quality of spending.

3. To allow for a detailed assessment of the quality of spending and consistently with the annual evaluation report on the Union's finances provided by the Commission under Article 318 TFEU, the Commission will transmit each year to the Council and to the European Parliament a summary report for the CSF programmes (based on the annual implementation reports of the Member States) as well as a synthesis of all available evaluations of Programmes. In addition, two strategic reports for the CSF programmes will be presented during the programming period.

4. The new MFF will cover the seven years between 2014 and 2020 and be drawn up for a European Union comprising 28 Member States on the working assumption that Croatia will join the Union in 2013.

5. Expenditure will be grouped under six Headings designed to ref lect the Union's political priorities and providing for the necessary f lexibility in the interest of efficient allocation of resources.

The Multiannual Financial Framework for the period 2014 to 2020 will have the following structure: – Sub-Heading 1a “Competitiveness for growth and jobs” which will include the Connecting Europe Facility; – Sub-Heading 1b “Economic, social and territorial cohesion”; – Heading 2 “Sustainable growth: natural resources” which will include a sub-ceiling for market related expenditure and direct

payments; – Heading 3 “Security and citizenship”; – Heading 4 “Global Europe”; – Heading 5 “Administration” which will include a sub-ceiling for administrative expenditure; – Heading 6 "Compensations".6. The European Council has reached political agreement that the maximum total figure for expenditure for EU 28 for the period

2014–2020 is EUR 959 988 million in appropriations for commitments, representing 1.00% of EU GNI and EUR 908 400 million in appropriations for payments representing 0.95% of the EU GNI. The breakdown of appropriations for commitments is described below. The same figures are also set out in the table contained in Annex I which equally sets out the schedule of appropriations for payments. All figures are expressed using constant 2011 prices. There will be automatic annual technical adjustments for inf lation. This is the basis on which the Council will now seek the consent of the European Parliament in accordance with Article 312(2)

MULTIANNUAL FINANCIAL FRAMEwORk

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TFEU which stipulates that the Council shall adopt the MFF regulation after obtaining the consent of the European Parliament. In order to ensure that the Union can fulfill all its financial obligations stemming from existing and future commitments in the

period 2014-2020 in accordance with Article 323 TFEU, specific rules for the management of the yearly payments ceilings will be laid down.

The statistical data and forecasts used to establish the eligibility and envelopes for the CSF funds and also for the calculation of total GNI are those used for the Commission update of the proposal for the MFF Regulation in July 2012 (COM(2012) 388).

7. Having in mind the financial needs necessary to develop investment in Europe and the objective of maximising the leverage effect of actions supported by the EU budget, a more widespread use of financial instruments including project bonds will be made as part of the implementation of the next MFF. Financial instruments must address one or more specific policy objectives of the Union, operate in a non-discriminatory fashion, must have a clear end-date, respect the principles of sound financial management and be complementary to traditional instruments such as grants. The financial liability of the Union for such financial instruments in the next multiannual financial framework will be limited to the EU budget contribution and will not give rise to contingent liabilities for the Union budget.

Financial instruments can only be implemented when they meet strict conditions as laid down in the new Financial Regulation. Financing from the EU budget for the purpose of financial instruments should only happen on a reasonable scale and where there is an added value.

8. The R AL (reste à liquider) is an inevitable by-product of multi-annual programming and differentiated appropriations. However, for various reasons, the R AL will be significantly higher than expected at the end of the financial framework for 2007- 2013. In order, therefore, to ensure a manageable level and profile for the payments in all Headings several initiatives are an integral part of the agreement on the financial framework 2014-2020:

– the levels of commitments are set at an appropriate level in all Headings; – de-commitments rules will be applied strictly in all Headings, in particular the rules for automatic de-commitments; – pre-financing rates are reduced compared to the period 2007-2013; – no degressivity of annual commitments for regional “safety net” arrangements under Cohesion Policy in order to contribute

to the manageable profile of commitments and payments.9. The EU has the responsibility, through certain conditionalities, robust controls and effective performance measurement, to

ensure that funds are better spent. It must also respond to the need to simplify its spending programmes in order to reduce the administrative burden and costs for their beneficiaries and for all actors involved, both at the EU level at the national level. All sectoral legislation relating to the next MFF as well as the new Financial Regulation and the Interinstitutional Agreement on cooperation in budgetary matters and on sound financial management should therefore contain substantial elements contributing to simplification and improving accountability and effective spending of EU funds. A particular effort will be made, both in the legislation and in its implementation, to ensure that the principles of subsidiarity and proportionality are fully taken into account and that the specificities of small programmes in "mono-region" Member States are taken into account in the definition of lighter rules.

10. The optimal achievement of objectives in some policy areas depends on the mainstreaming of priorities such as environmental protection into a range of instruments in other policy areas. Climate action objectives will represent at least 20% of EU spending in the period 2014-2020 and therefore be ref lected in the appropriate instruments to ensure that they contribute to strengthen energy security, building a low-carbon, resource efficient and climate resilient economy that will enhance Europe's competitiveness and create more and greener jobs.

11. In order to allow the EU budget to play its crucial role in fostering growth, jobs and competitiveness, the following legislative texts now need to be adopted as soon as possible following the procedures enshrined in the Treaty and respecting the role of the different institutions. In particular:

• theRegulationlayingdowntheMFFfortheyears2014-2020; • theInterinstitutionalAgreementoncooperationinbudgetarymattersandonsoundfinancialmanagement; • theDecisiononthesystemofownresourcesoftheEuropeanUnionaswellasitsimplementingmeasures. On the basis of the levels of commitments in this agreement, and noting the indicative figures proposed by the Commission for

the objectives under all the Headings, the Council and the European Parliament are invited to come to a timely agreement on the appropriate funding of each of the proposed instruments, programmes and funds financed under the MFF, including the possibility of a review.

Recalling the intensive contacts held over the past months with the European Parliament, both in the margins of the meetings of the General Affairs Council and at the level of the Institutions' Presidents in line with Article 324 TFEU, the European Council invites the Presidency to rapidly take forward discussions with the European Parliament.

The Commission is invited to provide all assistance and support it deems useful to further the decision-making process.12. The European Council calls on the co-legislators to adopt swiftly the financing programmes implementing the 2014-2020

Multiannual Financial Framework so as to ensure their timely roll-out from 1 January 2014. It recalls the shared objective and

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responsibility of the Institutions and the Member States to simplify the funding rules and procedures. The European Council welcomes progress made in the on-going negotiations and urges the co-legislators to agree on programmes that are simpler, that mark a clear reduction in administrative burden for public authorities and for beneficiaries. This would make the programmes more accessible, more f lexible and strongly focused on the delivery of results in terms of growth and jobs, in line with our Europe 2020 strategy.

PART I: EXPENDITURE

SUB-HEADING 1a – COMPETITIVENESS FOR GROWTH AND JOBS 13. Smart and inclusive growth corresponds to an area where EU action has significant value added. The programmes under this

Heading have a high potential to contribute to the fulfilment of the Europe 2020 Strategy, in particular as regards the promotion of research, innovation and technological development; specific action in favour of the competitiveness of enterprises and SMEs; investing in education and in human skills through the ER ASMUS for all programme; and developing the social agenda. In allocating funding within this Heading, particular priority shall be given to delivering a substantial and progressive enhancement of the EU's research, education and innovation effort, including through simplification of procedures.

14. Given their particular contribution to the objectives of the Europe 2020 Strategy, the funding for Horizon 2020 and ER ASMUS for all programmes will represent a real growth compared to 2013 level.

15. The level of commitments for this sub-Heading, will not exceed EUR 125 614 million:

SUB-HEADING 1a: Competitiveness for growth and jobs (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

15 605 16 321 16 726 17 693 18 490 19 700 21 079

16. There is a critical need to reinforce and extend the excellence of the Union’s science base. The effort in research and development will therefore be based on excellence, while ensuring broad access to participants in all Member States; this, together with a thorough simplification of the programme, will ensure an efficient and effective future European Research Policy also ensuring better possibilities for SMEs to participate in the programmes. All policies will be called upon to contribute to increase competitiveness and particular attention will be paid to the coordination of activities funded through Horizon 2020 with those supported under other Union programmes, including through cohesion policy. In this context, important synergies will be needed between Horizon 2020 and the structural funds in order to create a “stairway to excellence” and thereby enhance regional R&I capacity and the ability of less performing and less developed regions to develop clusters of excellence.

CONNECTING EUROPE FACILITY17. Interconnected transport, energy and digital networks are an important element in the completion of the European single market.

Moreover, investments in key infrastructures with EU added value can boost Europe’s competitiveness in the medium and long term in a difficult economic context, marked by slow growth and tight public budgets. Finally, such investments in infrastructure are also instrumental in allowing the EU to meet its sustainable growth objectives outlined in the Europe 2020 Strategy and the EU's "20-20-20" objectives in the area of energy and climate policy. At the same time measures in this area will respect market actors’ main responsibilities for planning and investment in energy and digital infrastructure.

The financial envelope for the implementation of the Connecting Europe Facility for the period 2014 to 2020 will be EUR 29 299 million including EUR 10 000 million that will be transferred from the Cohesion Fund as provided in (a) below. That total amount will be distributed among the sectors as follows:

(a) transport: EUR 23 174 million, out of which EUR 10 000 million will be transferred from the Cohesion Fund to be spent in line with the CEF Regulation in Member States eligible for funding from the Cohesion Fund;

(b) energy: EUR 5 126 million;(c) telecommunications: EUR 1000 million.

The transfer from the Cohesion Fund for transport infrastructure under the Connecting Europe Facility will co-finance pre-identified projects listed in the annex to the CEF Regulation; until 31 December 2016, the selection of projects eligible for financing should be carried out respecting the national allocations transferred from the Cohesion Fund to the Connecting Europe Facility. Thereafter, any unused funds could be redeployed to new projects through new competitive calls for proposals.

18. The three large infrastructure projects of Galileo, ITER and GMES will be financed under sub-Heading 1a with an amount of EUR 12 793 million. In order to ensure sound financial management and financial discipline, the maximum level of commitments for each of these projects will be laid down in the MFF Regulation as follows:

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(a) Galileo: EUR 6 300 million(b) ITER: EUR 2 707 million(c) GMES: EUR 3 786 million

19. In order to support nuclear safety in Europe a support will be granted to the decommissioning of the following nuclear power plants (1):

– EUR 400 million to Ignalina in Lithuania for 2014 - 2020; – EUR 200 million to Bohunice in Slovakia for 2014 - 2020; – EUR 260 million to Kozloduy in Bulgaria for 2014 - 2020.

SUB-HEADING 1b – ECONOMIC, SOCIAL AND TERRITORIAL COHESION

COHESION POLICY20. One important objective of the European Union is to promote economic, social and territorial cohesion and solidarity among

Member States. Cohesion policy is in this respect the main tool to reduce disparities between Europe's regions and must therefore concentrate on the less developed regions and Member States. Cohesion policy is a major tool for investment, growth and job creation at EU level and for structural reforms at national level. It accounts for an important share of public investments in the EU, contributes to deepening of the internal market and thus plays an important role in boosting economic growth, employment and competitivenes. Furthermore Cohesion policy shall contribute to the Europe 2020 Strategy for smart, sustainable and inclusive growth throughout the European Union. Through the European Regional Development Fund (ERDF), the European Social Fund (ESF) and the Cohesion Fund (CF), it will pursue the following goals: "Investment for growth and jobs" in Member States and regions, to be supported by all the Funds; and "European territorial cooperation", to be supported by the ERDF. The Cohesion Fund will support projects in the field of environment and transport trans-European networks. The necessary support to human capital development will be ensured through an adequate share of the ESF in cohesion policy.

21. As regards the structure of the Heading and considering the specificities of cohesion policy, cohesion expenditure will be contained within a sub-Heading under Heading 1 under the title ”Economic, social and territorial cohesion”.

overall level of allocations22. The level of commitments for sub-Heading 1b “Economic, social and territorial cohesion” will not exceed EUR 325 149 million:

SUB-HEADING 1b: Economic, social and territorial cohesion (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

44 678 45 404 46 045 46 545 47 038 47 514 47 925

23. Resources for the "Investment for growth and jobs" goal will amount to a total of EUR 313 197 million and will be allocated as follows:

(a) a total of EUR 164 279 million for less developed regions; a total of EUR 31 677 million for transition regions; a total of EUR 49 492 million for more developed regions; a total of EUR 66 362 million for Member States supported by the Cohesion Fund;(b) a total of EUR 1 387 million as additional funding for the outermost regions identified in Article 349 of the Treaty and the northern sparsely populated regions fulfilling the criteria laid down in Article 2 of Protocol No 6 to the Treaty of Accession of Austria, Finland and Sweden.

24. Resources for the "European territorial cooperation" goal will amount to a total of EUR 8 948 million which will be distributed as follows:

(a) a total of EUR 6 627 million for cross-border cooperation;(b) a total of EUR 1 822 million for transnational cooperation;(c) a total of EUR 500 million for interregional cooperation.

(1) Without prejudice to: the Protocol No. 4 on the Ignalina nuclear power plant in Lithuania and Protocol n°9 on unit 1 and unit 2 of the Bohunice V1 nuclear power plant in Slovakia attached to the Act of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic. (OJ L 236, 23.09.2003, p. 944.) as well as the Protocol concerning the conditions and arrangements for admission of the Republic of Bulgaria and Romania to the European Union.

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25. 0.35% of the global resources will be allocated to technical assistance at the initiative of the Commission. Technical assistance shall in particular be used to support institutional strengthening and administrative capacity building for the effective management of the Funds and supprting Member States in identifying and carrying out useful projects within the operational programmes for overcoming current economic challenges.

26. EUR 330 million of the Structural Funds resources for the Investment for growth and jobs goal will be allocated to innovative actions at the initiative of the Commission in the area of sustainable urban development.

Definitions and eligibility27. Resources for the "Investment for growth and jobs" goal will be allocated to three types of regions, defined on the basis of how

their GDP per capita, measured in purchasing power parities and calculated on the basis of Union figures for the period 2007 to 2009 relates to the average GDP of the EU-27 for the same reference period, as follows:

(a) less developed regions, whose GDP per capita is less than 75 % of the average GDP of the EU-27; (b) transition regions, whose GDP per capita is between 75% and 90% of the average GDP of the EU-27;(c) more developed regions, whose GDP per capita is above 90 % of the average GDP of the EU-27.

28. The Cohesion Fund will support those Member States whose gross national income (GNI) per capita, measured in purchasing power parities and calculated on the basis of Union figures for the period 2008 to 2010, is less than 90 % of the average GNI per capita of the EU-27 for the same reference period.

29. For cross-border cooperation, the regions to be supported will be the NUTS level 3 regions of the Union along all internal and external land borders, and all NUTS level 3 regions of the Union along maritime borders separated by a maximum of 150 km, without prejudice to potential adjustments needed to ensure the coherence and continuity of cooperation programme areas established for the 2007-2013 programming period.

30. For transnational cooperation, the Commission will adopt the list of transnational areas to receive support, broken down by cooperation programme and covering NUTS level 2 regions while ensuring the continuity of such cooperation in larger coherent areas based on previous programmes.

31. For interregional cooperation, support from the ERDF will cover the entire territory of the Union.32. At the request of a Member State, Nuts level 2 regions which have been merged by Commission Regulation (EU) 31/2011 of

17 January 2011, and where the application of the modified NUTS classification results in changes in the eligibility category status of one or more of the regions concerned, shall be part of the category determined at the level of the modified NUTS region.

allocation method Allocation method for less developed regions33. The specific level of allocations to each Member State will be based on an objective method and calculated as follows : Each Member State's allocation is the sum of the allocations for its individual eligible regions, calculated according to the following

steps:(i) determination of an absolute amount (in euro) obtained by multiplying the population of the region concerned by the difference

between that region's GDP per capita, measured in purchasing power parities (PPS), and the EU 27 average GDP per capita (PPS);(ii) application of a percentage to the above absolute amount in order to determine that region's financial envelope; this percentage

is graduated to ref lect the relative prosperity, measured in purchasing power parities (PPS), as compared to the EU 27 average, of the Member State in which the eligible region is situated, i.e.:

– for regions in Member States whose level of GNI per capita is below 82% of the EU average: 3.15% – for regions in Member States whose level of GNI per capita is between 82% and 99% of the EU average: 2.70% – for regions in Member States whose level of GNI per capita is over 99% of the EU average: 1.65%;

(iii) to the amount obtained under step (ii) is added, if applicable, an amount resulting from the allocation of a premium of EUR 1 300 per unemployed person per year, applied to the number of persons unemployed in that region exceeding the number that would be unemployed if the average unemployment rate of all the EU less developed regions applied;

(iv) There will be no urban premium.34. The result of the application of this methodology is subject to capping.Allocation method for transition regions 35. The specific level of allocations to each Member State will be based on an objective method and calculated as follows : Each Member State's allocation is the sum of the allocations for its individual eligible regions, calculated according to the following

steps:

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(i) determination of the minimum and maximum theoretical aid intensity for each eligible transition region. The minimum level of support is determined by the average per capita aid intensity per Member State before 60% regional safety net allocated to the more developed regions of that Member State. The maximum level of support refers to a theoretical region with a GDP per head of 75% of the EU27 average and is calculated using the method defined in paragraph 33(i) and (ii) above. Of the amount obtained by this method, 40% is taken into account;

(ii) calculation of initial regional allocations, taking into account regional GDP per capita through a linear interpolation of the region’s relative wealth compared to EU-27;

(iii) to the amount obtained under step (ii) is added, if applicable, an amount resulting from the allocation of a premium of EUR 1 100 per unemployed person per year, applied to the number of persons unemployed in that region exceeding the number that would be unemployed if the average unemployment rate of all the EU less developed regions applied;

(iv) There will be no urban premium.36. The result of the application of this methodology is subject to capping.Allocation method for more developed regions37. The total initial theoretical financial envelope is obtained by multiplying average aid intensity per head and per year of EUR 19.8

by the eligible population.38. The share of each Member State concerned is the sum of the shares of its eligible regions, which are determined on the basis of

the following criteria, weighted as indicated: – total regional population (weighting 25%), – number of unemployed people in NUTS level 2 regions with an unemployment rate above the average of all more developed

regions (weighting 20%), – employment to be added to reach the Europe 2020 target for regional employment rate (ages 20 to 64) of 75% (weighting 20%), – number of people aged 30 to 34 with tertiary educational attainment level to be added to reach the Europe 2020 target of 40%

(weighting 12.5%), – number of early leavers from education and training (aged 18 to 24) to be subtracted to reach the Europe 2020 target of 10%

(weighting 12.5%), – difference between the observed GDP of the region (in PPS) and the theoretical regional GDP if the region would have the

same GDP/head as the most prosperous NUTS2 region (weighting 7.5%), – population of NUTS level 3 regions with a population density below 12.5 inh./km² (weighting 2.5%). There will be no urban premium.Allocation method for the Cohesion Fund39. The total theoretical financial envelope is obtained by multiplying the average per capita aid intensity of EUR 48 by the eligible

population. Each eligible Member State's a priori allocation of this theoretical financial envelope corresponds to a percentage based on its population, surface area and national prosperity, and obtained by applying the following steps:

(i) calculation of the arithmetical average of that Member State's population and surface area shares of the total population and surface area of all the eligible Member States. If, however, a Member State’s share of total population exceeds its share of total surface area by a factor of five or more, ref lecting an extremely high population density, only the share of total population will be used for this step;

(ii) adjustment of the percentage figures so obtained by a coefficient representing one third of the percentage by which that Member State's GNI per capita (PPS) for the period 2008-2010 exceeds or falls below the average GNI per capita of all the eligible Member States (average expressed as 100%).

40. In order to ref lect the significant needs of Member States, which acceded to the Union on or after 1 May 2004, in terms of transport and environment infrastructure, their share of the Cohesion Fund will be set at one third of the total final financial allocation after capping (structural funds plus Cohesion Fund) received on average over the period.

41. The Member States fully eligible for funding from the Cohesion Fund in the period 2007-2013, but whose nominal GNI per capita exceeds 90 % of the average GNI per capita of the EU-27 will receive support from the Cohesion Fund on a transitional and specific basis. This transitional support will be of EUR 48 per capita in 2014 and will degressively be phased out by 2020.

42. The result of the application of this methodology is subject to capping.Allocation method for "European territorial cooperation" 43. The allocation of resources by Member State, covering cross-border and transnational cooperation, is determined as the weighted

sum of the share of the population of border regions and of the share of the total population of each Member State. The weight is determined by the respective shares of the cross-border and transnational strands. The shares of the cross border and transnational cooperation components are 77.9 % and 22.1 %.

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Allocation method for outermost, sparsely populated regions and islands 44. Outermost regions and northern sparsely populated NUTS level 2 regions will benefit from an additional special allocation with

an aid intensity of EUR 30 per inhabitant per year. It will be distributed per region and Member State in a manner proportional to the total population of these regions. The special situation of island regions also needs to be taken into account.

Capping45. In order to contribute to achieve adequate concentration of cohesion funding on the least developed regions and Member States

and to the reduction of disparities in average per capita aid intensities, the maximum level of transfer to each individual Member State will be set at 2.35 % of GDP. The capping will be applied on an annual basis, and will - if applicable - proportionally reduce all transfers (except for the more developed regions and "European territorial cooperation") to the Member State concerned in order to obtain the maximum level of transfer. For Member States which acceded to the Union before 2013 and whose average real GDP growth 2008-2010 was lower than -1%, the maximum level of transfer shall be increased by 10% producing a capping of 2.59 %.

46. Taking into account the present economic circumstances, the capping rules cannot result in national allocations higher than 110% of their level in real terms for the period 2007-2013.

Safety nets47. For all regions whose GDP per capita for the 2007-2013 period was less than 75% of the EU-25 average, but whose GDP per capita

is above 75% of the EU-27 average, the minimum level of support in 2014-20 under "Investment for growth and jobs" goal will correspond every year to 60% of their former indicative average annual allocation under the Convergence allocation, calculated by the Commission within the multiannual financial framework 2007-2013.

48. The minimum total allocation (Cohesion Fund and Structural Funds) for a Member State shall correspond to 55% of its individual 2007-2013 total allocation. The adjustments needed to fulfil this requirement are applied proportionally to the allocations of the Cohesion Fund and the Structural Funds, excluding the allocations of the European Territorial Cooperation Objective.

49. No transition region shall receive less than what it would have received if it had been a more developed region. In order to determine the level of this minimum allocation, the allocation distribution method for more developed regions will be applied to all regions having a GDP/head of at least 75% of the EU27 average.

other special allocation provisions50. A number of Member States have been particularly affected by the economic crisis within the euro-area which has had a direct

impact on their level of prosperity. To address this situation and in order to boost growth and job creation in these Member States, the Structural Funds will provide the following additional allocations: EUR 1.375 bn for the more developed regions of Greece, EUR 1.0 bln for Portugal, distributed as follows : EUR 450 million for more developed regions of which EUR 150 million for Madeira, EUR 75 million for transition region and EUR 475 million for the less developed regions, EUR 100 million for the Border, Midland and Western region of Ireland, EUR 1.824 bn for Spain, out of which EUR 500 million for Extremadura and EUR 1.5 bn for the less developed regions of Italy, out of which EUR 500 million for non-urban areas.

51. In order to recognise the challenges posed by the situation of islands Member States and the remoteness of certain parts of the European Union, Malta and Cyprus shall receive, after the application of point 48, an additional envelope of EUR 200 million and EUR 150 million respectively under the "Investment for growth and jobs" goal and distributed as follows: one third for the Cohesion Fund and two thirds for the Structural Funds. Ceuta and Melilla shall be allocated an additional envelope of EUR 50 million under the Structural Funds. The outermost region of Mayotte shall be allocated a total envelope of EUR 200 million under the Structural Funds.

52. To facilitate the adjustment of certain regions either to changes in their status or to long-lasting effect of recent developments in their economy the following allocations are made: Belgium (EUR 133 million, out of which EUR 66.5 million for Limburg and EUR 66.5 million for Wallonia), Germany (EUR 710 million, out of which EUR 510 million for the ex-convergence regions and EUR 200 million for Leipzig). Notwithstanding point 45, the less developed regions of Hungary shall be allocated an additional envelope of EUR 1.560 billion, the less developed regions of the Czech Republic an additional envelope of EUR 900 mln (out of which EUR 300 million will be transferred from the rural development allocation of the Czech Republic) and the less developed region of Slovenia an additional envelope of EUR 75 mln, under the Structural Funds.

53. A total of EUR 150 million will be allocated for the PEACE Programme.

review clause54. To take account of the particularly difficult situation of Greece and other countries suffering from the crisis, in 2016, the Commission

will review all Member States' total allocations under the "Investment for growth and jobs" goal of cohesion policy for 2017-2020, applying the allocation method defined in paragraphs 33 to 49 on the basis of the then available most recent statistics and of the comparison between the cumulated national GDP observed for the years 2014-2015 and the cumulated national GDP estimated

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in 2012. It will adjust these total allocations whenever there is a cumulative divergence of more than +/-5%. The total net effect of the adjustments may not exceed EUR 4 billion. The required adjustment will be spread in equal proportions over the years 2017-2020 and the corresponding ceiling of the financial framework shall be modified accordingly.

Co-financing rates55. The co-financing rate at the level of each priority axis of operational programmes under the "Investment for growth and jobs" goal

will be no higher than:(a) 85 % for the Cohesion Fund;(b) 85 % for the less developed regions of Member States whose average GDP per capita for the period 2007 to 2009 was below

85 % of the EU-27 average during the same period and for the outermost regions;(c) 80% for the less developed regions of Member States other than those referred to in point (b) eligible for the transitional regime

of the Cohesion Fund on 1 January 2014;(d) 80% for the less developed regions of Member States other than those referred to in points (b) and (c), and for all regions whose

GDP per capita for the 2007-2013 period was less than 75% of the average of the EU-25 for the reference period but whose GDP per capita is above 75% of the GDP average of the EU-27, as well as for regions defined in article 8(1) of the Regulation 1083/2006 receiving transitional support for the period 2007-2013;

(e) 60 % for the transition regions other than those referred to in point (d);(f) 50 % for the more developed regions other than those referred to in point (d).

The co-financing rate at the level of each priority axis of operational programmes under the "European territorial cooperation" goal will be no higher than 85%. For those programmes where there is at least one less developed region participating the co-financing rate under the "European territorial cooperation" goal can be raised up to 85%.

The co-financing rate of the additional allocation for outermost regions identified in Article 349 of the Treaty and the NUTS level 2 regions fulfilling the criteria laid down in Article 2 of Protocol No 6 to the Treaty of Accession of Austria, Finland and Sweden will be not higher than 50%.

56. Increase in payments for Member State with temporary budgetary difficulties. A higher co-financing rate (by 10 percentage points) can be applied when a Member State is receiving financial assistance in

accordance with Articles 136 and 143 of the TFEU, thus reducing the effort required from national budgets at a time of fiscal consolidation, while keeping the same overall level of EU funding. This rule shall continue to apply to these Member States until 2016 when it shall be reassessed within the framework of the review foreseen in paragraph 54.

regional aid 57. Regional state aid rules must not distort competition. The European Council encourages the Commission to proceed to the quick

adoption of the revised Regional Aid Guidelines which it has launched. In that context, the Commission will ensure that Member States can accommodate the particular situation of regions bordering convergence regions.

AID FOR MOST DEPRIVED PEOPLE58. The support for aid for most deprived people will be EUR 2 500 million for the period 2014-2020 and will be taken from the ESF

allocation.

YOUTH EMPLOYMENT INITIATIVE59. On several occasions the European Council stressed that the highest priority should be given to promoting youth employment.

It devoted a special meeting to this theme in January 2012 and gave it a strong emphasis in the Compact for Jobs and Growth. It expects the Council to adopt soon the recommendation on a Youth Guarantee. It invites the Commission to finalise the quality framework for traineeships, to establish the Alliance for Apprenticeships and to make proposals for the new EURES regulation in the coming weeks. The EU budget should be mobilised in support to these efforts. Recognising the particularly difficult situation of young people in certain regions, the European Council has decided to create a Youth Employment Initiative to add to and reinforce the very considerable support already provided through the EU structural funds. The Initiative will be open to all regions (NUTS level 2) with levels of youth unemployment above 25%. It will act in support of measures set out in the youth employment package proposed by the Commission in December 2012 and in particular to support the Youth Guarantee following its adoption. The support for the Initiative will be EUR 6 000 million for the period 2014-2020.

60. EUR 3 000 million will come from targeted investment from the European Social Fund in the eligible NUTS level 2 regions, proportionally to the number of unemployed youth in these regions, and EUR 3 000 million from a dedicated Youth Employment budget line under sub-heading 1b). Eligibility and number of unemployed youth will be determined on the basis of Union figures for the year 2012. For every intervention of the ESF in the eligible region, an equivalent amount will be added from the dedicated budget line. This matching amount will not be subject to the capping rules under paragraphs 45 and 46.

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HEADING 2 - SUSTAINABLE GROWTH: NATURAL RESOURCES61. The objectives of the Common Agricultural Policy (CAP) is to increase agricultural productivity by promoting technical progress

and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour; thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture, to stabilise markets, to ensure the availability of supplies and to ensure that supplies reach consumers at reasonable prices. Account should be taken of the social structure of agriculture and of the structural and natural disparities between the various agricultural regions.

62. Against that background reforms must ensure 1) a viable food production; 2) sustainable management of natural resources and climate action; and 3) balanced territorial development. Furthermore, the CAP should be thoroughly integrated into the Europe 2020 strategy objectives notably the objective of sustainable growth, while fully respecting the objectives of this policy as set out in the Treaty.

63. Commitment appropriations for this Heading, which covers agriculture, rural development, fisheries and a financial instrument for the environment and climate action will not exceed EUR 373 179 million of which EUR 277 851 million will be allocated to market related expenditure and direct payments:

SUSTAINABLE GROWTH: NATURAL RESOURCES (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

55 883 55 060 54 261 53 448 52 466 51 503 50 558

of which : Market related expenditure and direct payments

41 585 40 989 40 421 39 837 39 079 38 335 37 605

The Common Agricultural Policy for the period 2014-2020 will continue to be based on the two pillar structure: – Pillar I will provide direct support to farmers and finance market measures. Direct support and market measures will be funded

entirely and solely by the EU budget, so as to ensure the application of a common policy throughout the single market and with the integrated administration and control system (IACS).

– Pillar II of the CAP will deliver specific environmental public goods, improve the competitiveness of the agriculture and forestry sectors promote the diversification of economic activity and quality of life in rural areas including regions with specific problems. Measures in Pillar II will be co-financed by Member States according to the provisions in paragraph 73, which helps to ensure that the underlying objectives are accomplished and reinforces the leverage effect of rural development policy.

Pillar I

Level and model for redistribution of direct support - details of convergence across member States64. In order to adjust the overall level of expenditure under Heading 2 while respecting the principles of phasing-in of the direct payments

as forseen in the Accession Treaties, the EU average level of direct payments in current prices per hectare will be reduced over the period . Direct support will be more equitably distributed between Member States, while taking account of the differences that still exist in wage levels, purchasing power, output of the agricultural industry and input costs, by stepwise reducing the link to historical references and having regard to the overall context of Common Agricultural Policy and the Union budget. Specific circumstances, such as agricultural areas with high added value and cases where the effects of convergence are disproportionately felt, should be taken into account in the overall allocation of support of the CAP.

All Member States with direct payments per hectare below 90% of the EU average will close one third of the gap between their current direct payments level and 90% of the EU average in the course of the next period. However, all Member States should attain at least the level of EUR 196 per hectare in current prices by 2020. This convergence will be financed by all Member States with direct payments above the EU average, proportionally to their distance from the EU average. This process will be implemented progressively over 6 years from financial year 2015 to financial year 2020.

Capping of support to large farms65. Capping of the direct payments for large beneficiaries will be introduced by Member States on a voluntary basis.

method for financial discipline66. With a view to ensuring that the amounts for the financing of the CAP comply with the annual ceilings set in the multiannual

financial framework, the financial discipline mechanism currently provided for in Article 11 of the Regulation 73/2009, pursuant to which the level of direct support is adjusted when the forecasts indicate that the sub-ceiling of Heading 2 is exceeded in a given financial year should be maintained, but without the safety margin of EUR 300 million.

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Greening of direct payments67. The overall environmental performance of the CAP will be enhanced through the greening of direct payments by means of certain

agricultural practices, to be defined in the Regulation of the European Parliament and of the Council establishing rules for direct payments to farmers under support schemes within the framework of the common agricultural policy, beneficial for the climate and the environment, whilst avoiding unnecessary administrative burden, that all farmers will have to follow. In order to finance those practices, Member States will use 30 % of the annual national ceiling, with a clearly defined f lexibility for the Member States relating to the choice of equivalent greening measures. The requirement to have an ecological focus area (EFA) on each agricultural holding will be implemented in ways that do not require the land in question to be taken out of production and that avoids unjustified losses in the income of farmers.

Flexibility between pillars68. Member States may decide to make available as additional support for measures under rural development programming financed

under the EAFRD, up to 15 % of their annual national ceilings for calendar years 2014 to 2019 as set out in Annex II to the Regulation on direct payments. As a result, the corresponding amount will no longer be available for granting direct payments.

69. Member States may decide to make available as direct payments under the Regulation on direct payments up to 15 % of the amount allocated to support for measures under rural development programming financed under the EAFRD in the period 2015-2020. Member States with direct payments per hectare below 90% of the EU average may decide to make available as direct payments an additional 10% of the amount allocated to support for measures under rural development. As a result, the corresponding amount will no longer be available for support measures under rural development programming.

Pillar II

principles for distribution of rural development support70. Support for rural development will be distributed between Member States based on objective criteria and past performance, while

taking into account the objectives of the rural development and having regard to the overall context of Common Agricultural Policy and the Union budget.

71. The overall amount of support for rural development will be EUR 84 936 million. The annual breakdown will be fixed by the European Parliament and the Council. Amounts for the individual Member States will be adjusted to take account of the above mentioned provisions in paragraphs 68 and 69.

72. The distribution of the overall amount for rural development between Member States will be based on objective criteria and past performance.

For a limited number of Member States facing particular structural challenges in their agriculture sector or which have invested heavily in an effective delivery framework for Pillar 2 expenditure, the following additional allocations will be made: Austria (EUR 700 million), France (EUR 1000 million), Ireland (EUR 100 million), Italy (EUR 1 500 million), Luxembourg (EUR 20 million), Malta (EUR 32 million), Lithuania (EUR100 million), Latvia (EUR 67 million), Estonia (EUR 50 million), Sweden (EUR 150 million), Portugal (EUR 500 million), Cyprus (EUR 7 million), Spain (EUR 500 million), Belgium (EUR 80 million), Slovenia (EUR 150 million) and Finland (EUR 600 million). For Member States receiving financial assistance in accordance with Articles 136 and 143 TFEU, this additional allocation will be subject to a co-financing rate of 100%. This rule shall continue to apply to these Member States until 2016 when it shall be reassessed.

Co-financing rates for rural development support73. The rural development programmes will establish a single EAFRD contribution rate applicable to all measures. Where applicable,

a separate EAFRD contribution rate will be established for less developed regions, transition regions and for outermost regions and the smaller Aegean islands within the meaning of Regulation (EEC) No 2019/93. The maximum EAFRD contribution rate will be:

– 75% of the eligible public expenditure in the less developed regions, the outermost regions and the smaller Aegean islands within the meaning of Regulation (EEC) No 2019/93;

– 75% of the eligible public expenditure for all regions whose GDP per capita for the 2007-2013 period was less than 75% of the average of the EU-25 for the reference period but whose GDP per capita is above 75% of the GDP average of the EU-27;

– 63% of the eligible public expenditure for the transition regions other than those referred to in the previous indent; – 53% of the eligible public expenditure in the other regions; – 75% for operations contributing to the objectives of environment and climate change mitigation and adaptation; – 100% for amounts transferred from pillar I to pillar II referred to in paragraph 68 as additional support under rural development. The minimum EAFRD contribution rate will be 20%. Other maximum EAFRD contribution rates to specific measures will be

set in the Regulation on support for rural development by the European Agricultural Fund for Rural Development (EAFRD).

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A higher co-financing rate (by 10 percentage points) can be applied when a Member State is receiving financial assistance in accordance with Articles 136 and 143 of the TFEU, thus reducing the effort required from national budgets at a time of fiscal consolidation, while keeping the same overall level of EU funding. This rule shall continue to apply to these Member States until 2016 when it shall be reassessed within the framework of the review foreseen in paragraph 54.

* * *

74. Financing under Heading 2 will also support the Common Fisheries Policy and Integrated Maritime Policies, in particular through the European Maritime and Fisheries Fund and an envelope for the international dimension of the CFP as well as activities in the fields of climate and environment through the Programme for the Environment and Climate Action (LIFE).

a new reserve for crises in the agricultural sector 75. A new reserve for crises in the agricultural sector, to bring support in case of major crises affecting agricultural production or

distribution, will be included under Heading 2 with an amount of EUR 2 800 million. The reserve will be established by applying at the beginning of each year a reduction to direct payments with the financial discipline mechanism. The amount of the reserve will be entered directly in the annual budget and if not made available for crisis measures will be reimbursed as direct payments.

PROVISIONS RELEVANT FOR THE ERDF, THE ESF, THE CF, THE EAFRD AND THE EMFF

The Common Strategic Framework76. The structural and cohesion funds will be brought together with the European Agricultural Fund for Rural Development (EAFRD)

and the European Maritime and Fisheries Fund (EMFF) under a the Common Strategic Framework - in order to maximise their effectiveness and optimise synergies. This will involve defining a list of thematic objectives in line with the Europe 2020 Strategy.

macro-economic conditionality77. Establishing a closer link between cohesion policy and the economic governance of the Union will ensure that the effectiveness

of expenditure under the Common Strategic Framework (CSF) Funds is underpinned by sound economic policies and that the CSF Funds can, if necessary, be redirected to addressing the economic problems a country is facing. For this reason a gradual macro-economic conditionality will be established in the CSF Regulation.

78. The Commission may request a Member State to review and propose amendments to its Partnership Contract and the relevant programmes, where this is necessary to support the implementation of relevant Council recommendations or to maximise the growth impact of CSF funds in Member States receiving financial assistance from the EU. Such a request may be made to support implementation of:

(a) recommendations under the broad guidelines of the economic policy;(b) employment recommendations;(c) specific measures addressed to euro area Member States in accordance with Article 136(1);(d) recommendations under the excessive deficit procedure;(e) recommendations under the excessive imbalances procedure;(f) union support under the medium-term balance of payments facility;(g) union support under the European financial stabilisation mechanism;(h) financial assistance under the European Stability Mechanism.

79. If a Member State fails to take effective action in response to a request from the Commission to review and propose amendments to its Partnership Contract and the relevant programmes, part or all of payments may be suspended.

80. Where it is concluded that a Member State has not taken sufficient action under:(a) specific measures addressed to euro area Member States in accordance with Article 136(1);(b) the excessive deficit procedure;(c) the macro-economic imbalances procedure;(d) a programme under the medium-term balance of payments facility;(e) a programme under the European financial stabilisation mechanism;(f) financial assistance under the European Stability Mechanism.

Part or all of commitments and payments shall be suspended.81. The proposal to suspend commitments shall be made by the Commission and will be considered automatically adopted by the

Council, unless the Council rejects such a proposal by qualified majority within one month. The decision to suspend payments shall by made by the Council, on a proposal from the Commission. Any decisions on suspensions will be proportionate and effective, taking into account the economic and social circumstances of the Member State concerned, and respect equality of

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treatment between Member States, in particular with regard to the impact of the suspension on the economy of the Member State concerned. Priority should be given to the suspension of commitments; payments should only be suspended when immediate action is sought and in case of non-compliance.

82. The suspension of commitments shall be subject to a "double capping" methodology.(a) a capping of maximum 50% of the CSF funds in the first case of an excessive deficit procedure (EDP) and maximum 25% of the

CSF funds in the first case of an excessive imbalance procedure (EIP). The level of the suspension should be gradual and increase up to a maximum of 100% of the CSF funds in the case of an excessive deficit procedure and up to 50% of the CSF funds in the case of an excessive imbalance procedure, in line with the seriousness of the breach;

(b) a capping of a maximum 0.5% of nominal GDP applying to a first breach of an excessive deficit procedure (EDP) according to Art. 21 (6b) of the CSF regulation and a maximum of 0.25% of nominal GDP applying to a first breach of an excessive imbalance procedure (EIP) according to Art. 21 (6c) of the CSF regulation. If non-compliance persists, the percentage of this GDP cap should be gradually increased up to a maximum of 1% of nominal GDP applying to a further breach of an excessive deficit procedure (EDP) according to Art. 21 (6b) of the CSF regulation and a maximum of 0.5% of nominal GDP applying to a further breach of an excessive imbalance procedure (EIP) according to Art. 21 (6c) of the CSF regulation, in line with the seriousness of the breach.

83. Without prejudice to de-commitment rules, the suspension of commitments will be lifted by the Commission. Concerning payments, the decision to lift the suspension is taken by the Council on a proposal from the Commission. Funds are made available again to the Member State concerned as soon as the Member State takes the necessary action.

84. Paragraph 79 relating to paragraph 78 (a), (b), (d) and (e) and paragraph 80 (b) and (c) shall not apply to the UK as a consequence of the Protocol (no 15) annexed to the TEU and the TFEU, (see the report "Strengthening economic governance in the EU" by the Task Force on 21 October 2010).

performance reserve85. All Member States shall establish a national performance reserve for the Investment for growth and jobs goal of cohesion policy,

as well as for EAFRD and EMFF, consisting of 7% of their total allocation, which will facilitate the focus on performance and the attainment of the Europe 2020 objectives. The amounts of commitments that are annually allocated to a national performance reserve are exempted from the n+3 de-commitment rule as long as the reserve is not allocated. The allocation of the reserve will be made after the performance review in 2019.

pre-financing rates86. The pre-financing payment at the start of programmes ensures that Member States have the means to provide support to beneficiaries

in the implementation of the programme from the start. The following levels of pre-financing should therefore apply: The initial pre-financing amount will be paid in instalments as follows:

(a) in 2014: 1% of the amount of support from the Funds for the entire programming period to the operational programme and 1.5% of the amount of support from the Funds for the entire programming period to the operational programme when a Member State has been receiving financial assistance since 2010, in accordance with articles 122, 143 of the TFEU, or from the EFSF, or is receiving financial assistance on 31 December 2013 in accordance with articles 136 and 143;

(b) in 2015: 1% of the amount of support from the Funds for the entire programming period to the operational programme and 1.5% of the amount of support from the Funds for the entire programming period to the operational programme when a Member State has been receiving financial assistance since 2010, in accordance with articles 122, 143 of the TFEU, or from the EFSF, or is receiving financial assistance on 31 December 2014 in accordance with articles 136 and 143;

(c) in 2016: 1% of the amount of support from the Funds for the entire programming period to the operational programme. If an operational programme is adopted in 2015 or later, the earlier instalments will be paid in the year of adoption.

other regulatory provisions87. All programmes will be submitted to a decommitment procedure established on the basis that amounts linked to a commitment

which are not covered by pre-financing or a request for payment within a period of N+3 will be decommitted. For Romania and Slovakia, the European Council invites the Commission to explore practical solutions to reduce the risk of

automatic de-commitment of funds from the 2007-2013 national envelope, including the amendment of Regulation 1083/2006.

appraisal88. On the basis provided in paragraph 3, the General Affairs Council will discuss every two years the implementation and results

of the CSF funds and will provide input to the Spring Council's overall assessment of all EU policies and instruments to deliver growth and jobs across the European Union.

89. Projects whose total eligible cost is more than EUR 50 million (EUR 75 million in the case of transport projects) will be subject to a more extensive ex ante appraisal by the Commission to ensure that they are consistent with the Partnership Contract, they contribute to the objective of the programme, and they are economically sound.

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90. The Commission and the Member States must agree ambitious targets at the beginning of the programming period. Targets must be measurable and include financial and output indicators. The Commission shall regularly review progress towards targets and report to the Council and European Parliament according to point 3. When there is evidence of significant failure to achieve the agreed targets, the Commission may apply financial corrections.

application of the competition principle to project selection91. Member States must ensure that the selection of projects is based on procedures and criteria, which are non-discriminatory,

transparent and in full compliance with Union and national law so that only the best projects are chosen.

VaT92. VAT shall not be eligible for a contribution from the CSF Funds and from the EUR 10 000 million transferred from the Cohesion

Fund to the Connecting Europe Facility. However, VAT amounts shall be eligible where they are not recoverable under national VAT legislation.

HEADING 3 - SECURITY AND CITIZENSHIP93. Actions under this Heading constitute a diversified range of programmes targeted to security and citizens where cooperation at

Union level offers value added. This includes in particular actions in relation to asylum and migration and initiatives in the areas of external borders and internal security as well as measures in the field of justice. Particular emphasis will be given to insular societies who face disproportional migration challenges. Actions within this Heading also support efforts to promote citizen participation in the European Union, including through culture, linguistic diversity and the creative sector. Furthermore, it covers measures to enhance public health and consumer protection. Simplification of programmes will ensure a more efficient and effective future implementation of actions in this area.

The level of commitments for this Heading will not exceed EUR 15 686 million :

HEADING 3 — SECURITY AND CITIZENSHIP (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

2 053 2 075 2 154 2 232 2 312 2 391 2 469

HEADING 4 - GLOBAL EUROPE94. External policies are a major field of action for the EU, which has been reinforced within the new institutional framework of

the Lisbon Treaty. The MFF must underpin the EU's determination to develop its role as an active player on the international scene, with regional and global interests and responsibilities. Its financing instruments will strengthen EU’s cooperation with partners, support the objectives of promoting EU values abroad, projecting EU policies in support of addressing major global challenges, increasing the impact of EU development cooperation, investing in the long-term prosperity and stability of the EU's Neighbourhood, supporting the process of EU enlargement, enhancing European solidarity following natural or man-made disasters, improving crisis prevention and resolution and combating climate change. Where appropriate and subject to objective criteria, support to partners will be adapted to their development situation and commitment and progress with regard to human rights, democracy, the rule of law and good governance. Increased f lexibility within Heading 4 and efficiency in implementation will underpin this.

The level of commitments for this Heading will not exceed EUR 58 704 million:

HEADING 4 — GLOBAL EUROPE (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

7 854 8 083 8 281 8 375 8 553 8 764 8 794

95. A key priority for Member States is to respect the EU's formal undertaking to collectively commit 0.7% of GNI to official development assistance by 2015, thus making a decisive step towards achieving the Millennium Development Goals. The European Union should as part of this commitment therefore aim to ensure over the period 2014-2020 that at least 90% of its overall external assistance be counted as official development assistance according to the present definition established by the OECD Development Assistance Committee (DAC).

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HEADING 5 - ADMINISTRATION

96. The need to consolidate public finances in short, medium and long term requires a particular effort by every public administration and its staff to improve efficiency, effectiveness and adjust to the changing economic context. Expenditures under this Heading must take account of the capacity of the Institutions to carry out their tasks under the Treaties, the EU's growing legal obligations and the next enlargement of the EU. The EU Institutions must also preserve their capacity to attract and maintain a highly professional and geographically balanced EU administration.

97. The level of commitments for this Heading will not exceed EUR 61 629 million:

HEADING 5 – ADMINISTRATION (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

8 218 8 385 8 589 8 807 9 007 9 206 9 417

98. Within such a ceiling, expenditure for administrative expenditure of institutions, excluding pensions and European Schools, will not exceed EUR 49 798 million under the following sub-ceiling.

Sub ceiling administrative expenditure (excluding pensions and European Schools) (Million euros, 2011 prices)

2014 2015 2016 2017 2018 2019 2020

6 649 6 791 6 955 7 110 7 278 7 425 7 590

99. These ceilings include the effects of the following savings:•areductionappliedtoallEUinstitutions,bodies,agenciesandtheiradministrationsof5%inthestaffovertheperiod2013-2017.

This shall be compensated by an increase in working hours for staff without salary adjustment.•reductionsinnon-staffrelatedexpenditure,furtherreformsoftheStaffRegulationandotherinternaladministrativemeasures.•AspartofthereformoftheStaffRegulation,theadjustmentofsalariesandpensionsofallstaffthroughthesalarymethodwill

be suspended for two years.•Thesavingsreferredtoaboveshallbeequallysharedbetweenallinstitutionsaswellasotherbodiesaccordingtoadistributionkey

and this shall be made binding through their insertion into the Inter Institutional Agreement on budgetary discipline and sound financial management. Each Institution, body or agency is expected to present estimates of expenditure in the annual budgetary procedure consistent with the above orientations. The development in costs for pensions will also be addressed in the reform of the staff regulations. As part of the reform of the Staff Regulations, the new solidarity levy will be reintroduced at a level of 6% as part of the reform of the salary method. These measures will have a significant impact on the cost for pensions in the mid- and long-term.

100. The ceilings indicated above set the framework for the co-decision process which will decide the concrete implementation of these and the other measures proposed by the Commission (such as restrictions on early retirement, the extension of the retirement age as well as the method for fixing annual adjustments).

HORIZONTAL ISSUES – INSTRUMENTS OUTSIDE THE MFF AND FLEXIBILITY

101. The MFF will include, as a rule, all items for which EU financing is foreseen, as a means of ensuring transparency and appropriate budget discipline. However, given their specificities, the Flexibility Instrument, the Solidarity Fund, the European Globalisation Adjustment Fund, the Emergency Aid Reserve and the European Development Fund will be placed outside the MFF.

102. The Union must have the capacity to respond to exceptional circumstances, whether internal or external. At the same time, the need for f lexibility must be weighed against the principle of budgetary discipline and transparency of EU expenditure including the agreed level of spending. Therefore, the following f lexibility instrument is built into the MFF: within Heading 2 a new reserve for crises in the agricultural sector is created to bring support in case of major crises affecting agricultural production or distribution.

It is in the nature of f lexibility instruments that they are only mobilised in case of need.103. The European Union Solidarity Fund, the objective of which is to bring financial assistance in the event of major disasters, will

continue to be financed outside the MFF with a maximum annual amount of EUR 500 million (2011 prices).104. The Flexibility Instrument, the objective of which is to finance clearly identified and unforeseen expenditures, will continue to be

financed outside the MFF with a maximum annual amount of EUR 471 million (2011 prices). 105. The Emergency Aid Reserve, the objective of which is to ensure capacity to respond rapidly to specific and unforeseeable aid

requirements of third countries (humanitarian operations, civil crisis management and protection, migratory pressures), will continue to be financed outside the MFF with a maximum annual amount of EUR 280 million (2011 prices).

44

106. The European Globalisation Adjustment Fund will continue to be financed outside the MFF with a maximum annual amount of EUR 150 million (2011 prices).

107. A Contingency Margin of up to 0,03 % of the Gross National Income of the Union shall be constituted outside the ceilings of the financial framework for the period 2014 2020, as a last resort instrument to react to unforeseen circumstances. The decision to mobilise the Contingency Margin shall be taken jointly by the two arms of the budgetary authority. The Council shall act by qualified majority. Recourse to the contingency margin shall not exceed, at any given year, the maximum amount foreseen in the annual technical adjustment of the MFF and shall be consistent with the own resources ceiling. Amounts made available through the mobilisation of the Contingency Margin shall be fully offset against the margins in one or more financial framework headings for the current or future financial years. The amounts thus offset shall not be mobilised in the context of the financial framework. Recourse to the Contingency Margin shall not result in exceeding the total ceilings of commitment and payment appropriations laid down therein for the current and future financial years.

108. The EU's assistance to the ACP countries has traditionally been financed outside the EU budget for historical and legal reasons. In the current circumstances, with the Cotonou agreement due to expire in 2020, the EDF will remain outside the 2014-2020 MFF. It is noted, that the Commission intends to propose the budgetisation of the EDF as of 2021. The total amount available for the EDF will be EUR 26 984 million. The contribution key for the 11th EDF is contained in annex 2.

109. Specific and maximum possible f lexibility will be implemented in order to comply with Article 323 TFEU to allow the Union to fulfil its obligations. This will be part of the mandate on the basis of which the Presidency will take forward discussions with the European Parliament in line with point 11.

Improved and increased eIB involvement110. The EIB is already supporting growth considerably e.g. by providing loans to Member States which otherwise could not provide

co-financing for structural funds or by implementing joint financial instruments. EIB involvement should be enhanced by:(a) involving EIB expertise early in project co-financed by EU and EIB;(b) ensuring that EIB is informed about projects receiving EU support;(c) involving the EIB in the ex ante appraisal of large projects including through Jaspers; (d) involving the EIB wherever appropriate in activities related to technical assistance.

PART II: REVENUE111. The own resources arrangements should be guided by the overall objectives of simplicity, transparency and equity. The total amount

of own resources allocated to the Union budget to cover annual appropriations for payments shall not exceed 1.23% of the sum of all the Member States' GNIs. The total amount of appropriations for commitments entered in the Union budget shall not exceed 1.29% of the sum of all the Member States' GNIs. An orderly ratio between appropriations for commitments and appropriations for payments shall be maintained to guarantee their compatibility.

112. The new system of own resources of the European Union will enter into force on the first day of the month following receipt of the notification of its adoption by the last Member State. All its elements will apply retroactively from 1 January 2014.

Traditional own resources113. The system for collection of traditional own resources will remain unchanged. However, from 1 January 2014, Member States shall retain, by way of collection costs, 20% of the amounts collected by them.

VaT-based own resource114. The European Council calls upon the Council to continue working on the proposal of the Commission for a new own resource

based on value added tax (VAT) to make it as simple and transparent as possible, to strengthen the link with EU VAT policy and the actual VAT receipts, and to ensure equal treatment of taxpayers in all Member States. The new VAT own resource could replace the existing own resource based on VAT.

FTT-based own resource115. On 22 January 2013 the Council adopted the Council Decision authorising enhanced cooperation in the area of financial

transaction tax. The participating Member States are invited to examine if it could become the base for a new own resource for the EU budget. This would not impact non-participating Member States and would not impact the calculation of the United Kingdom correction.

45

GnI-based own resource

116. The method of applying a uniform rate for determining Member States' contributions to the existing own resource based on gross national income (GNI) will remain unchanged, without prejudice to points 115 and 118.

Implementing regulation

117. On the basis of Art. 311(4) TFEU, a Council Regulation laying down implementing measures will be established.

Corrections

118. The existing correction mechanism for the United Kingdom will continue to apply.

For the period 2014-2020 only:

•therateofcalloftheVAT-basedownresourceforGermany,TheNetherlandsandSwedenshallbefixedat0.15%;

•Denmark,TheNetherlandsandSwedenwillbenefitfromgrossreductionsintheirannualGNIcontributionofEUR130million,EUR 695 million and EUR 185 million respectively. Austria will benefit from gross reduction in its annual GNI contribution of EUR 30 million in 2014, EUR 20 million in 2015 and EUR 10 million in 2016.

46

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48

11th EDF contribution key

BE 3,25%

BG 0,22%

CZ 0,80%

DK 1,98%

DE 20,58%

EE 0,09%

IE 0,94%

EL 1,51%

ES 7,93%

FR 17,81%

IT 12,53%

CY 0,11%

LV 0,12%

LT 0,18%

LU 0,26%

HU 0,61%

MT 0,04%

NL 4,78%

AT 2,40%

PL 2,01%

PT 1,20%

RO 0,72%

SI 0,22%

SK 0,38%

FI 1,51%

SE 2,94%

UK 14,68%

HR 0,23%

ANNEX II

11th European Development Fund contribution key

49

I. ECONOMIC AND SOCIAL POLICY

european Semester: promoting competitiveness, growth and jobs, in particular for the young1. As agreed last December, Member States and the

European Union are taking determined action to promote competitiveness, growth and jobs in accordance with the following priorities set out in the Annual Growth Survey:

(a) pursuing differentiated, growth-friendly fiscal consolidation;

(b) restoring normal lending to the economy;(c) promoting growth and competitiveness;(d) tackling unemployment and the social consequences of

the crisis;(e) modernising public administration.

2. Implementation continues to be the key. Determined action is required to underpin the strong political commitment to promote growth and jobs and to respond to fiscal, macroeconomic and structural challenges. All of this should be ref lected in Member States' National Reform Programmes and Stability and Convergence Programmes, taking full account of the discussions held in the Council in the framework of the European Semester on the Commission's Annual Growth Survey as set out in the Presidency Synthesis Report and in the relevant

Council conclusions (1), as well as of the analysis provided by the Commission in the context of the macroeconomic imbalances procedure, including in the Alert Mechanism Report.

3. Substantial progress is being made towards structurally balanced budgets and that progress must continue. The European Council stresses in particular the necessity of differentiated growth-friendly fiscal consolidation, while recalling the possibilities offered by the existing fiscal rules of the Stability and Growth Pact (SGP) and the Treaty on Stability, Coordination and Governance (TSCG).

4. There should be an appropriate mix of expenditure and revenue measures at the level of the Member States, including short-term targeted measures to boost growth and support job-creation, particularly for the young, and prioritising growth-friendly investment. In this connection, the European Council recalls that while fully respecting the SGP, the possibilities offered by the EU's existing fiscal framework to balance productive public

(1) Council conclusions of 12 February 2013 on the Annual Growth Survey and on the Alert Mechanism Report, Council conclusions of 15 Febr uar y 2013 on education, Counci l conclusions of 28 Febr uar y 2013 on pol it ical g uidance on employment and social policies and Council conclusions of 5 March 2013 on quality of public expenditure.

EUROPEAN COUNCIL AND EURO SUMMIT — 14–15 MARCH 2013

CONCLUSIONS

Over recent years we have done much to respond to the pressing challenges posed by the financial and sovereign debt crisis, with the aim of paving the way for a return to sustainable job-creating growth and moving towards enhanced economic governance at both EU and euro area levels. Much has been accomplished, despite some remaining uncertainties in the financial markets. However, the stagnation of economic activity forecast for 2013 and the unacceptably high levels of unemployment emphasise how crucial it is to accelerate efforts to support growth as a matter of priority while pursuing growth-friendly fiscal consolidation. The European Council had a comprehensive discussion on the economic and social situation and set the orientations for the economic policy of the Member States and the European Union in 2013. The focus should be on the implementation of decisions taken, in particular as regards the Compact for Growth and Jobs. Particular priority must be given to supporting youth employment and promoting growth and competitiveness. The European Council will return in June to the assessment of policies being defined at national level to implement these priorities as well as to the implementation of the Compact for Growth and Jobs. It agreed that over the coming months it would discuss specific themes with a high potential for delivering growth and jobs. It also took stock of ongoing work on deepening the Economic and Monetary Union (EMU) with a view to its meeting in June.

* * *

50

(a) addressing unemployment is the most important social challenge facing us. Active employment, social and labour market policies therefore require special priority and attention in the present context and a particular priority must be given to promoting youth employment. Education and training systems need to perform better, ensuring that young people are equipped with the right skills and linking the worlds of work and education more effectively. Following the agreement reached at the February 2013 European Council on the Youth Employment Initiative, the Commission has put forward proposals, in the context of the ongoing negotiations on the European Social Fund Regulation, for the technical adjustments which will enable the Initiative to become fully operational as of 1 January 2014. In the meantime, Member States can make use of funding available from all relevant structural funds in the current programming period to contribute to the fight against youth unemployment. In this connection the European Council welcomes the Commission's efforts to build further on the work with Member States with the highest youth unemployment levels. The agreement reached at the Council on 28 February on the Youth Guarantee will help ensure that all young people under the age of 25 receive a good quality offer of employment, continued education, apprenticeship or traineeship within four months of becoming unemployed or leaving formal education, and should be rapidly implemented, including through the support of the Youth Employment Initiative. Work must also continue more generally further to the Employment package, including as regards bringing significantly more women into work, reducing long term unemployment and ensuring full participation of older workers. It is crucial to tackle the social consequences of the crisis and fight poverty and social exclusion;

(b) the Single Market continues to be a key driver for growth and jobs. In this context, the European Council invites the Member States to take full account of the recommendations in the Commission's report on the state of integration of the Single Market and welcomes the Commission's intention to integrate such reporting into future Annual Growth Surveys. The rapid conclusion of the work on all Single Market Act I proposals is an essential priority, particularly as regards key files such as accounting, professional qualifications, public procurement, posting of workers and e-identification/e-signature, with the aim of boosting competitiveness, deepening the Single Market and removing unjustified barriers. The Commission will present the remaining Single Market Act II proposals without delay with a view to their rapid examination so that they can be adopted before the end of this legislature. It is also urgent to improve implementation of all Single Market legislation, including the Services Directive, in particular through rigorous peer review and swift action to remove unjustified barriers. The European Council will continue to keep all these issues under regular review;

(c) Further action is required to reduce the overall burden of regulation at EU and national levels, while always taking

investment needs with fiscal discipline objectives can be exploited in the preventive arm of the SGP.

5. Fiscal consolidation and restoring financial stability need to go hand-in-hand with well-designed structural reforms aimed at promoting sustainable growth, employment and competitiveness and the correction of macroeconomic imbalances. In this context, the European Council recalls the importance of shifting taxation away from labour, where appropriate and recognising Member States' competences in this area, as a means of contributing to increasing employability and competitiveness.

6. In the context of challenging fiscal consolidation it is important to ensure that everybody pays their share of taxes. Renewed efforts are therefore needed to improve the efficiency of tax collection and to tackle tax evasion, including through savings taxations agreements with third countries and rapid progress in tackling the problem of VAT fraud. Close cooperation with the OECD and the G20 is needed to develop internationally agreed standards for the prevention of base erosion and profit shifting. To this end the EU will coordinate its positions. Work should advance on pending tax files such as the proposals on energy taxation, on the common consolidated corporate tax base and on the revision of the Savings Tax Directive. The European Council notes that the work on the enhanced cooperation on a financial transaction tax is advancing.

7. As regards action taken at EU level, the guidelines decided by the European Council over recent months, particularly in the Compact for Growth and Jobs, must continue to be fully and urgently implemented, exploiting in particular the potential of a green economy to promote growth and competitiveness. The recent increase in the EIB capital by EUR 10 billion will allow the Bank to lend an additional EUR 60 billion in support to growth and jobs, and together with the European Investment Fund, this will help catalyse projects worth up to EUR 180 billion in 2013-2015. The European Council will assess the implementation of the Compact in June, with a particular emphasis on measures aimed at creating jobs and on boosting the financing of the economy for fast-acting growth measures. In this respect, the Commission, together with the EIB, will report in June on the possibilities and on the targeted priorities that should be identified, in particular as regards infrastructure, energy and resource efficiency, digital economy, research and innovation and SMEs.

8. It is urgent to complete and implement the framework for better economic governance. The new legislation on fiscal and macroeconomic surveillance (the "six-pack", the "two-pack" and the TSCG) must be used to the full. In particular, all necessary preparatory work must be carried out to ensure that these new rules are effectively applied from the beginning of the national budgetary cycles in 2013.

9. The European Council today gives specific emphasis to the following issues:

51

(d) defence (December 2013): in this context, the European Council will also look at ways to develop a more integrated, innovative and competitive European defence technological and industrial base;

(e) industrial competitiveness and policy (June 2013 and February 2014): stressing the importance of making Europe more competitive as a place of production and investment, the European Council looks forward to the follow up to the Commission's recent communications on industrial policy and on specific industrial sectors as well as to the timely presentation of the Commission's further input for this discussion: the report on European competitiveness, the report on the implementation of industrial policy priorities and the conclusions of the review of the single market for industrial products.

Deepening emu11. The European Council took stock of the ongoing work on

the four strands identified in its conclusions of December 2012 on the deepening of EMU. Any new steps towards strengthening economic governance will need to be accompanied by further steps towards stronger legitimacy and accountability.

12. Progress towards a more integrated financial framework is urgently needed to restore normal lending, improve competitiveness and help bring about the necessary economic adjustments. Further to the progress achieved on the new rules for banks' capital requirements, the remaining outstanding technical issues must be rapidly finalised in order to allow final agreement to be reached by the end of the month. Concluding the legislative process on the Single Supervisory Mechanism (SSM) within the coming weeks is a priority.

13. The European Council recalls that it is imperative to break the vicious circle between banks and sovereigns. As agreed in December 2012, an operational framework, including the definition of legacy assets, should be agreed as soon as possible in the first semester of 2013, so that when an effective single supervisory mechanism is established, the European Stability Mechanism will, following a regular decision, have the possibility to recapitalise banks directly. Agreement must be reached on the Bank Recovery and Resolution Directive and Deposit Guarantee Scheme Directive before June 2013, ensuring a fair balance between home and host countries. The Commission intends to submit by summer 2013 a legislative proposal on a Single Resolution Mechanism for countries participating in the SSM, to be examined as a matter of priority with the intention of adopting it during the current parliamentary cycle. It should ensure an effective framework for resolving financial institutions while protecting taxpayers in the context of banking crises, be based on contributions from the financial sector itself and include appropriate and effective backstop arrangements, in line with its conclusions of December 2012. The integrity of the Single Market will be fully respected and a

account of the need for proper protection of consumers and employees. The Member States and the Commission should take work forward on smart regulation in the light of the Commission's recent communications, with a specific emphasis on the needs of SMEs. Member States will pay particular attention to avoiding additional burdens in the implementation of EU legislation. The European Council welcomes the Commission's recent report on the most burdensome regulations for SMEs and looks forward to receiving initial concrete proposals to implement its findings by June. The Commission will monitor progress through the SME Scoreboard. It will also ensure swift and effective implementation of its "regulatory fitness" ("REFIT") programme, notably by rapidly identifying the regulatory areas and pieces of legislation with the greatest potential for simplifying rules and reducing regulatory cost. The European Council looks forward to receiving the first proposals for simplification and reducing the regulatory burden in the autumn. The European Council notes that, as part of its annual work programme, the Commission puts forward a list of pending proposals to be withdrawn. In order to reduce the burden of regulation and foster competitiveness, it encourages the Commission to use the "REFIT" programme to identify and propose in the autumn the withdrawal of regulations that are no longer of use and to pursue the consolidation of existing legislation as part of its simplification work.

10. The European Council will hold, over the coming months, a series of thematic discussions on sectoral and structural aspects that are key to economic growth and European competitiveness. Such discussions will also feed into a debate next year on the Europe 2020 Strategy and the review of progress towards its headline targets. With a view to these discussions, it calls for preparatory work to be conducted giving priority to the following issues:

(a) energy (May 2013): work is ongoing on the completion of the Internal Energy Market and on interconnections with European energy markets. No EU Member State should remain isolated from the European gas and electricity networks after 2015. Europe needs investment in modern energy infrastructure and the challenge of high energy prices which hamper competitiveness needs to be tackled;

(b) innovation (October 2013): the European Council looks forward to the presentation by the Commission of its European Research Area progress report as well as its communication on the "State of the Innovation Union 2012", including the single innovation indicator, in time for its discussions;

(c) digital agenda and other services (October 2013): the European Council notes the Commission's intention to report well before October on the state of play and the remaining obstacles to be tackled so as to ensure the completion of a fully functioning Digital Single Market by 2015, as well as concrete measures to establish the single market in Information and Communications Technology as early as possible;

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level playing field will be ensured between Member States which take part in the SSM and those which do not.

14. The European Council takes note of the adoption of the rules for the organisation of the proceedings of the euro summits and welcomes the fact that these rules are intended to improve the quality of governance of the euro area while preserving the integrity of the European Union as a whole as recognised in particular by the relevant provisions of the TSCG (1).

II. OTHER ITEMS15. The European Council held an exchange of views on the

EU's relations with its strategic partners.

(1) The Netherlands entered a parliamentary reserve on this point.

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INTRODUCTION

The guiding principles for the conduct of proceedings of Euro Summit meetings (1) shall be to ensure the transparency and effectiveness of the working methods, allowing the Euro Summit Members the full capacity to discuss among themselves all issues of common interest to the euro area while respecting the substantive and procedural rights of the other Members of the Union and giving preference to inclusive methods whenever justified and possible.For points of organisation not decided in the rules, the Rules of Procedure of the European Council shall be used mutatis mutandis as a source of reference.

1. NOTICE AND VENUE OF MEETINGS

1. The Euro Summit shall meet at least twice a year, convened by its President. Its ordinary meetings shall, whenever possible, take place after the European Council meetings.

2. The Euro Summit shall meet in Brussels, unless otherwise decided by the President and in agreement with the Members of the Euro Summit.

3. Exceptional circumstances or cases of urgency may justify derogations from the present rules.

2. PREPARATION AND THE FOLLOW-UP TO THE PROCEEDINGS OF THE EURO SUMMIT

1. The President of the Euro Summit will ensure the preparation and continuity of the work of the Euro Summit, in close cooperation with the President of the Commission, and on the basis of the preparatory work of the Euro Group.

2. The Euro Group shall conduct preparatory work for and ensure the follow-up to the meetings of the Euro Summit. Information to Coreper shall be ensured before and after meetings of the Euro Summit.

3. The President shall establish close cooperation with the President of the Commission and the President of the Euro Group, particularly by means of regular meetings, as a rule once a month. The President of the European Central Bank may be invited to participate.

4. In the event of an impediment because of illness, in the event of his or her death or if his or her office is ended in

(1) Article 12 of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), the Statement of the Euro Summit meeting of 26 October 2011 and the Conclusions of the European Councils of 18–19 October 2012 and of13–14 December 2012 are relevant to the organisation of Euro Summit meetings.

accordance with Article 12 (1) of the TSCG, the President shall be replaced, where necessary until the election of his or her successor, by the member of the Euro Summit representing the Member State holding the six-monthly Presidency of the Council, or, if not applicable, the next Member State whose currency is the euro holding the Presidency of the Council.

3. PREPARATION OF THE AGENDA 1. In order to ensure the preparation provided for in Rule 2(1),

the President of the Euro Summit shall, at least four weeks before each ordinary meeting of the Euro Summit as referred to in Rule 1(1), in close cooperation with the President of the Commission and the President of the Euro Group, forward an annotated draft agenda to the Euro Group.

2. The Euro Group shall, as a rule, be convened within the fifteen days preceding a Euro Summit meeting to examine the draft agenda and its President shall report the outcome of the discussions to the President of the Euro Summit. In the light of this report, the President of the Euro Summit shall forward the draft agenda to the Heads of State or Government.

3. When the Heads of State or Government of the Contracting Parties to the TSCG, other than those whose currency is the euro, which have ratified the TSCG, participate in discussions of Euro Summit meetings, these contracting Parties shall be involved in the preparation of the Euro Summit meetings on the issues referred to in Rule 4(5) in a form to be decided by the President of the Euro Summit.

4. At the beginning of the meeting, the agenda shall be agreed by the Euro Summit, by simple majority.

4. COMPOSITION OF THE EURO SUMMIT, DELEGATIONS AND THE CONDUCT OF PROCEEDINGS

1. The Euro Summit shall consist of the Heads of State or Government of the Member States of the European Union whose currency is the euro, together with its President and with the President of the Commission.

2. The President of the European Central Bank shall be invited to take part.

3. The President of the Euro Group may be invited to attend.4. The President of the European Parliament may be invited

to be heard.5. The Heads of State or Government of the Contracting Parties

to the TSCG, other than those whose currency is the euro,

RULES FOR THE ORGANISATION OF

THE PROCEEDINGS OF THE EURO SUMMITS

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which have ratified the TSCG, shall participate in discussions of Euro Summit meetings concerning competitiveness for the Contracting Parties, the modification of the global architecture of the euro area and the fundamental rules that will apply to it in the future, as well as, when appropriate and at least once a year, in discussions on specific issues of implementation of the TSCG.

6. The total size of the delegations authorised to have access to the building where the meeting of the Euro Summit is held shall be limited to 20 persons for each Member State and for the Commission. That number shall not include technical personnel assigned to specific security or logistic support tasks. The names and functions of the members of the delegations shall be notified in advance to the General Secretariat of the Council.

7. The President of the Euro Summit shall be responsible for the application of these rules and for ensuring that discussions are conducted smoothly. To that end, the President may take any measure conducive to promoting the best possible use of the time available, such as organising the order in which items are discussed, limiting speaking time and determining the order in which contributors speak.

8. Meetings of the Euro Summit shall not be public.

5. THE PRESIDENT OF THE EURO SUMMIT1. The President of the Euro Summit shall be appointed by

the Heads of State or Government of the Member States of the European Union whose currency is the euro by simple majority at the same time as the European Council elects its President and for the same term of office.

2. The President of the Euro Summit:(a) shall chair it and drive forward its work;(b) shall draw up meeting agendas;(c) shall ensure the preparation and continuity of the work

of the Euro Summit in cooperation with the President of the Commission and on the basis of the work of the Euro Group;

(d) shall ensure that the work of all relevant Council and ministerial meetings is ref lected in the preparation of the Euro Summit;

(e) shall report to the European Parliament after each of the meetings of the Euro Summit;

(f) shall keep the Contracting Parties of the TSCG other than those whose currency is the euro and the other Member States of the European Union closely informed of the preparation and outcome of the Euro Summit meetings;

(g) shall present the outcomes of Euro Summit discussions to the public, together with the President of the Commission.

6. STATEMENTS1. The Euro Summit may issue statements summarizing

common positions and common lines of actions, which shall be made public.

2. Draft statements of the Euro Summit shall be prepared under the authority of the President of the Euro Summit, in close cooperation with the President of the Commission and the President of the Euro Group, on the basis of the preparatory work of the Euro Group.

3. Statements shall be agreed by consensus of the Members of the Euro Summit.

4. The Euro Summit shall issue statements in the official languages of the European Union.

5. Upon proposal by the President of the Euro Summit, draft statements on an urgent matter may be approved by a written procedure, when all Members of the Euro Summit agree to use that procedure.

7. PROFESSIONAL SECRECY AND PRODUCTION OF DOCUMENTS IN LEGAL PROCEEDINGS

Without prejudice to the provisions on public access to documents applicable under the law of the Union, the deliberations of the Euro Summit shall be covered by the obligation of professional secrecy, except insofar as the Euro Summit agrees otherwise.

8. SECRETARIAT AND SECURITY1. The Euro Summit and its President shall be assisted by the

General Secretariat of the Council under the authority of its Secretary-General.

2. The Secretary General of the Council shall attend the meetings of the Euro Summit and shall take all the measures necessary for the organisation of proceedings.

3. The Council’s security rules shall apply mutatis mutandis to the Euro Summit.

9. AMENDMENT OF THE RULESUpon proposal by the President of the Euro Summit, these rules may be amended by consensus. The written procedure may be used for this purpose. The rules should in particular be adapted if this is required by the evolution of the governance of the Euro area.

10. CORRESPONDENCE ADDRESSED TO THE EURO SUMMIT

Correspondence to the Euro Summit shall be sent to its President at the following address:Euro SummitRue de la Loi/Wetstraat 1751048 Bruxelles/BrusselBELGIqUE/BELGIë

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I. ENERGY

1. The EU's energy policy must ensure security of supply for households and companies at affordable and competitive prices and costs, in a safe and sustainable manner. This is particularly important for Europe's competitiveness in the light of increasing energy demand from major economies and high energy prices and costs. While the guidelines set by the European Council in February 2011 remain valid and must continue to be implemented, further work is required as set out below.

2. Reaffirming the objectives of completing the internal energy market by 2014 and developing interconnections so as to put an end to any isolation of Member States from European gas and electricity networks by 2015, the European Council called for particular priority to be given to:

(a) the effective and consistent implementation of the third "energy package", as well as speeding up the adoption and implementation of remaining network codes. Member States which have not yet completed transposition are invited to do so as a matter of urgency;

(b) the implementation of all other related legislation, such as the Directive on the promotion of renewable energies and the Regulation on security of gas supply;

(c) more determined action on the demand side as well as the development of related technologies, including the drawing up of national plans for the swift deployment of smart grids and smart meters in line with existing legislation;

(d) stepping up the role and rights of consumers, including change of suppliers, improved management of energy use and own energy generation; in this respect, the European Council underlines the importance of protecting vulnerable consumers;

(e) the Commission providing guidance on capacity mechanisms and on addressing unplanned power f lows.

3. The Commission intends to report on progress on implementation of the internal energy market early in 2014. Member States will regularly exchange information on major national energy decisions which have a possible impact on other Member States, while fully respecting national choices of energy mix.

4. Significant investments in new and intelligent energy infrastructure are needed to secure the uninterrupted supply of energy at affordable prices. Such investments are vital for jobs and sustainable growth and will help enhance competitiveness. Their financing should primarily come from the market. This makes it all the more important to have a well-functioning carbon market and a predictable climate and energy policy framework post-2020 which is conducive to mobilising private capital and to bringing down costs for energy investment. The European Council welcomes the Commission's Green Paper on a 2030 framework for climate and energy policies and will return to this issue in March 2014, after the Commission comes forward with more concrete proposals, to discuss policy options in that regard, bearing in mind the objectives set for the COP 21 in 2015.

EUROPEAN COUNCIL — 22 MAY 2013

CONCLUSIONS

In the current economic context we must mobilise all our policies in support of competitiveness, jobs and growth. The supply of affordable and sustainable energy to our economies is crucial in that respect. This is why the European Council agreed today on a series of guidelines in four fields which together should allow the EU to foster its competitiveness and respond to the challenge of high prices and cost: urgent completion of a fully functioning and interconnected internal energy market, facilitation of the required investment in energy, diversification of Europe's supplies and enhanced energy efficiency. Tax fraud and tax evasion limit countries' capacity to raise revenue and carry out their economic policies. In times of tight budgetary constraints, combating tax fraud and tax evasion is more than an issue of tax fairness - it becomes essential for the political and social acceptability of fiscal consolidation. The European Council agreed to accelerate work in the fight against tax fraud, tax evasion and aggressive tax planning. In particular, work will be taken forward as a matter of priority on promoting and broadening the scope of the automatic exchange of information at all levels.

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7. Energy efficiency measures can make a significant contribution to reversing current trends in energy prices and costs. The implementation of the Directives on energy efficiency and on energy performance of buildings is of crucial importance. The Commission will review the Directives on eco-design and energy labelling before the end of 2014, in line with technological developments. Energy efficiency measures and programmes should be promoted at all levels.

8. The impact of high energy prices and costs must be addressed, bearing in mind the primary role of a well-functioning and effective market and of tariffs in financing investment. The European Council calls for work to be taken forward on the following aspects:

(a) innovative financing methods, including for energy efficiency, more systematic supply diversification and improved liquidity in the internal energy market also have a particular role to play when addressing energy costs;

(b) the issue of the contractual linkage of gas and oil prices needs to be looked at in this context;

(c) the Commission intends to present an analysis of the composition and drivers of energy prices and costs in Member States before the end of 2013, with a particular focus on the impact on households, SMEs and energy intensive industries, and looking more widely at the EU's competitiveness vis-à-vis its global economic counterparts. These issues will be addressed in the context of the discussion scheduled for the February 2014 European Council on industrial competitiveness and policy.

9. The Council will report back on progress on the implementation of the guidelines agreed today by the end of the year.

II. TAXATION10. It is important to take effective steps to fight tax evasion

and tax fraud, particularly in the current context of fiscal consolidation, in order to protect revenues and ensure public confidence in the fairness and effectiveness of tax systems. Increased efforts are required in this field, combining measures at the national, European and global levels, in full respect of Member States' competences and of the Treaties. Recalling the conclusions adopted by the Council on 14 May 2013, the European Council calls for rapid progress on the following issues:

(a) priority will be given to efforts to extend the automatic exchange of information at the EU and global levels. At the level of the EU, the Commission intends to propose amendments to the Directive on administrative cooperation in June in order for the automatic exchange of information to cover a full range of income. At the international level, building on ongoing work in the EU and on the momentum recently created by the initiative taken by a group of Member States, the EU will play a key role in promoting the automatic exchange of information as the new international standard, taking account of existing EU arrangements. The European

5. As regards action taken to facilitate investments, priority will be given to:

(a) the swift implementation of the TEN-E Regulation and the adoption this autumn of the list of projects of common interest with a view to supporting efforts across the EU to achieve effective interconnection between Member States and more determined action to meet the target of achieving interconnection of at least 10% of installed electricity production capacity;

(b) the adoption of the Directive on the deployment of alternative fuels infrastructure;

(c) the revision by the Commission of state aid rules to allow for targeted interventions to facilitate energy and environmental investment, ensuring a level playing-field and respecting the integrity of the single market;

(d) phasing out environmentally or economically harmful subsidies, including for fossil fuels;

(e) the presentation by the Commission of guidance on efficient and cost-effective support schemes for renewable energies and on ensuring adequate generation capacity;

(f) national and EU measures, such as the structural funds, project bonds and enhanced EIB support, to boost the financing of energy and resource efficiency, energy infrastructure and renewables and promote the development of Europe's technological and industrial basis;

(g) continued efforts on energy R&D, technology and the exploitation of synergies with ICT, through better coordination between the EU, Member States and industry and drawing up of a R&D strategy in energy matters to achieve genuine added value at European level.

6. It remains crucial to further intensify the diversification of Europe's energy supply and develop indigenous energy resources to ensure security of supply, reduce the EU's external energy dependency and stimulate economic growth. To that end:

(a) the deployment of renewable energy sources will continue, while ensuring their cost-effectiveness, further market integration and grid stability and building on the experience in some Member States which have heavily invested in renewable energy technologies;

(b) the Commission intends to assess a more systematic recourse to on-shore and off-shore indigenous sources of energy with a view to their safe, sustainable and cost-effective exploitation while respecting Member States' choices of energy mix;

(c) given the increasing interlinking of internal and external energy markets, Member States will enhance their cooperation in support of the external dimension of EU energy policy; before the end of 2013, the Council will follow up on its conclusions of November 2011 and review developments regarding EU external energy policy, including the need to ensure a level playing-field vis-à-vis third country energy producers as well as nuclear safety in the EU neighbourhood following up on the European Council conclusions of June 2012.

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Conduct on business taxation on the basis of its existing mandate;

(g) efforts taken against base erosion, profit shifting, lack of transparency and harmful tax measures also need to be pursued globally, with third countries and within relevant international fora, such as the OECD, so as to ensure a level-playing field, on the basis of coordinated EU positions. In particular, further work is necessary to ensure that third countries, including developing countries, meet appropriate standards of good governance in tax matters;

(h) there is a need to deal with tax evasion and fraud and to fight money laundering, within the internal market and vis-à-vis non-cooperative third countries and jurisdictions, in a comprehensive manner. In both cases the identification of beneficial ownership, including as regards companies, trusts and foundations, is essential. The revision of the third anti-money laundering Directive should be adopted by the end of the year;

(i) the proposal amending the Directives on disclosure of non-financial and diversity information by large companies and groups will be examined notably with a view to ensuring country-by-country reporting by large companies and groups;

(j) efforts are required to respond to the challenges of taxation in the digital economy, taking full account of ongoing work in the OECD. The Commission intends to assess these issues further, in advance of the October 2013 European Council discussion on the digital agenda.

11. The Council will report back on progress on all these issues by December 2013.

Council welcomes ongoing efforts made in the G8, G20 and OECD to develop a global standard;

(b) further to the agreement reached on 14 May 2013 on the mandate to improve the EU's agreements with Switzerland, Liechtenstein, Monaco, Andorra and San Marino, negotiations will begin as soon as possible to ensure that these countries continue to apply measures equivalent to those in the EU.

In the light of this and noting the consensus on the scope of the revised Directive on the taxation of savings income, the European Council called for its adoption before the end of the year;

(c) Member States will also give priority to the concrete follow-up to the Action Plan on strengthening the fight against tax fraud and tax evasion;

(d) in order to counter VAT fraud, the European Council expects the Council to adopt the Directives on the quick reaction mechanism and on the reverse charge mechanism by the end of June 2013 at the latest;

(e) work will be carried forward as regards the Commission's recommendations on aggressive tax planning and profit shifting. The Commission intends to present a proposal before the end of the year for the revision of the "parent/subsidiary" Directive, and is reviewing the anti-abuse provisions in relevant EU legislation. The European Council looks forward to the OECD's forthcoming report on base erosion and profit shifting;

(f) it is important to continue work within the EU on the elimination of harmful tax measures. To that end, work should be carried out on the strengthening of the Code of

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I. YOUTH EMPLOYMENT

1. Combating youth unemployment is a particular and immediate objective, considering the unacceptably high number of young Europeans who are unemployed. All efforts must be mobilised around the shared objective of getting young people who are not in education, employment or training back to work or into education or training within four months, as set out in the Council's recommendation on the "Youth Guarantee". Building on the Commission's communication on youth employment, determined and immediate action is required at both national and EU level.

2. The EU will mobilise all available instruments in support of youth employment. The European Council agrees on a comprehensive approach based on the following concrete measures:

(a) in implementing the Structural Funds, particular focus will be given to youth employment, including by reprogramming unspent funds where appropriate. The

Commission and the Member States will exploit all possibilities offered by the European Social Fund (ESF), which is one of the main financial tools at EU level for this purpose, including through supporting the creation of new jobs for young workers. Where appropriate, the Member States will improve their administrative capacity, using enhanced technical assistance from the Commission and building on best practices;

(b) all the necessary preparations will be made for the Youth Employment Initiative (YEI) to be fully operational by January 2014, allowing the first disbursements to beneficiaries in EU regions experiencing youth unemployment rates above 25% to be made (1). In order

(1) Considering that in Slovenia, youth unemployment has increased by more than 30% in 2012, the region of Eastern Slovenia, where youth unemployment in 2012 is more than 20%, will also benefit from the YEI.

EUROPEAN COUNCIL — 27– 28 JUNE 2013

CONCLUSIONS

Against the background of a weak short-term economic outlook, youth unemployment has reached unprecedented levels in several Member States, with huge human and social costs. Urgent action must be taken. Today, the European Council agreed on a comprehensive approach to combat youth unemployment, building on the following concrete measures: speeding up and frontloading of the Youth Employment Initiative; speeding up implementation of the Youth Guarantee; increased youth mobility and involvement of the social partners. The European Council also discussed ways to boost investment and improve access to credit. It called for the mobilisation of European resources including that of the EIB; and launched a new "Investment Plan" to support SMEs and boost the financing of the economy. Financial stability is improving, but further actions by the EU and its Member States are needed to put Europe firmly back on the track of sustained growth and jobs. Sound public finances and policies supporting sustainable growth and jobs are mutually reinforcing. At the same time, more determined efforts are required at all levels to carry forward structural reforms and boost competitiveness and employment. In this context, the European Council endorsed country-specific recommendations to guide Member States' policies and budgets, thus concluding the 2013 European semester. The European Council also assessed progress towards the banking union, which is crucial for financial stability and the smooth functioning of the EMU. Finally, the European Council set out the next steps in the reinforcement of the EMU architecture and called for work to continue on all these issues in the run up to the December European Council.The European Council warmly welcomed Croatia as a member of the European Union as of 1 July 2013. It also congratulated Latvia on fulfilling the convergence criteria of the Treaty, thus allowing it to adopt the euro on 1 January 2014. The European Council endorsed the Council's conclusions and recommendations on enlargement and the stabilisation and association process.

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Member States have already presented ambitious plans to support youth employment. But more work must be done. In particular, Member States with high youth unemployment should step up active labour market measures. It is important to pay due attention to the labour market participation of groups of vulnerable young people facing specific challenges. While recognising Member States' competences in this area, the European Council recalled the importance of shifting taxation away from labour, including by reducing social contributions, as appropriate, as a means of increasing employability and boosting job creation and competitiveness. The European Council called for increased sharing of best national practices; in this respect, it welcomed the upcoming Berlin Conference.

II. GROWTH, COMPETITIVENESS AND JOBS

european Semester4. Following an in-depth exchange of views, the

European Council concluded the 2013 European semester by generally endorsing the country-specific recommendations. Member States will now translate the recommendations into their forthcoming decisions on budgets, structural reforms and employment and social policies, while promoting full national ownership and preserving social dialogue. The Council and the Commission will closely monitor their implementation. The Council will regularly discuss and assess the economic situation in Europe.

5. Promoting growth and fiscal consolidation are mutually reinforcing. Sound public finances are crucial in order for public authorities to retain their capacity to support sustainable growth and jobs. In this respect, the European Council welcomes the abrogation of the excessive deficit procedure for several Member States as well as the efforts of those which are expected to meet their fiscal targets. It recalls the possibilities offered by the EU's existing fiscal framework to balance productive public investment needs with fiscal discipline objectives in the preventive arm of the Stability and Growth Pact. For some Member States, the pace of fiscal consolidation has been adjusted to respond to economic conditions, as provided for in the EU fiscal framework. At the same time, Member States should accelerate their structural reforms. This will underpin efforts for a rebalancing of the EU economy, help restore competitiveness and address the social consequences of the crisis.

a new Investment plan for europe6. In the present economic context it is crucial to restore

normal lending to the economy and to facilitate the financing of investment. Given the importance of SMEs for the economy, especially as regards job creation, measures to support SME financing will be a priority. This is particularly important in countries with high youth unemployment and where new investments are

(for the YEI to play its full role, the disbursement of the EUR 6 billion allocated to it should take place during the first two years of the next Multiannual Financial Framework (1). Furthermore, margins left available below the MFF ceilings for the years 2014-2017 will be used to constitute a "global margin for commitments" to fund in particular measures to fight youth unemployment. Member States benefitting from the YEI should adopt a plan to tackle youth unemployment, including through the implementation of the "Youth Guarantee", before the end of the year. Other Member States are encouraged to adopt similar plans in 2014. The Commission will report in 2016 on the implementation of the "Youth Guarantee" and on the operation of the YEI;

(c) the EIB will contribute to the fight against youth unemployment through its "Jobs for Youth" initiative and its "Investment in Skills" programme, which should be implemented without delay;

(d) new efforts will be made to promote the mobility of young job-seekers, including by strengthening the "Your First EURES Job" programme. Member States are encouraged to use part of their ESF allocations to support cross-border mobility schemes. The "Erasmus +" programme, which also fosters cross-border vocational training, must be fully operational from January 2014. The agreement between the European Parliament and the Council on the recognition of professional qualifications is particularly welcome. The Commission proposals leading to the creation of a network of public employment services should be rapidly examined. More efforts are required, notably on the proposal relating to the preservation of supplementary pension rights, which is to be adopted during the current parliamentary term;

(e) high quality apprenticeships and work-based learning will be promoted, notably through the European Alliance for Apprenticeships to be launched in July. The quality Framework for Traineeships should be put into place in early 2014;

(f) the social partners need to be fully involved and actively engaged in these efforts. The European Council welcomes the "Framework of Actions on Youth Employment" agreed by the social partners on 11 June 2013.

3. At national level, where most of the competences related to employment lie, Member States should advance with their reforms. Member States are taking measures to modernise vocational and education systems, strengthen the cooperation between education and business to facilitate the transition from school to work, improve the integration of low-skilled young people into the labour market, address skills mismatches and promote apprenticeships and traineeships in key economic sectors, as well as entrepreneurship and start-ups. A number of

(1) This will be done without negative effect on the goals set by the European Council in May 2013 as regards energy policy.

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the principles of financial soundness and transparency as well as the MFF ceilings. The Council, in consultation with the Commission and the EIB, will specify without delay the parameters for the design of such instruments co-financed by the Structural Funds, aiming at high leverage effects. The necessary preparations should be made to allow these instruments to begin operating in January 2014;

(c) increasing the EIF's credit enhancement capacity;(d) gradual expansion of the EIB's trade finance schemes

to favour SME business across the Union, especially in programme countries;

(e) strengthening of the cooperation between national development banks and the EIB to increase opportunities for co-lending and exchanges of best practices;

(f) developing alternative sources of financing in close cooperation with Member States.

Implementing the Compact for Growth and Jobs9. One year ago, the European Council agreed a Compact

for Growth and Jobs, a package of fast-acting growth measures underpinned by financing of EUR 120 billion. While good progress has been made in delivering on these measures, some of which are already bearing fruit, more efforts are required. EU institutions and Member States should do their utmost to ensure that all the elements of the Compact are rapidly implemented, as set out in previous European Council conclusions, in particular as regards the Single Market, innovation, the digital agenda, services, energy and tax. The European Council looks forward to an updated progress report on the Compact in December 2013 building on a regular review by the Council.

10. As agreed last March, the European Council will monitor closely the implementation of the guidelines it sets to boost economic growth and promote competitiveness, in particular by holding regular thematic discussions. In this context, the European Council held a first exchange of views on two key issues:

(a) The vital importance of a strong European industrial base as an essential building block of the EU's growth and competitiveness agenda. The European Council called for a broad horizontal and coherent approach for a modern European industrial policy accompanying structural change and economic renewal. It welcomed the Commission Action Plan for a competitive and sustainable steel industry. With a view to the February 2014 European Council, it looked forward to further inputs from the Commission in line with the March and May 2013 European Council conclusions. The incoming Presidency is invited to take preparatory work forward within the Council;

(b) recalling its conclusions of March 2013, the European Council welcomed the Commission communication on the top ten most burdensome regulations as an initial contribution. It looked forward to receiving ahead of

needed to promote growth and jobs. It is also important to promote entrepreneurship and self employment. The European Council accordingly agreed on the launch of a new "Investment Plan".

7. The European Council welcomed the agreement reached on the EU's Multiannual Financial Framework (MFF) for the coming seven years. It thanked the negotiators of the European Parliament, the Council and the Commission for their work and tireless efforts which enabled this deal to be made today. The MFF will play a crucial role in supporting the economy, by acting as a catalyst for growth and jobs across Europe and leveraging productive and human capital investments. The European Council called for the rapid formal adoption of the MFF Regulation and the associated Interinstitutional Agreement. In this connection the European Council also welcomed the agreements reached on new programmes such as ER ASMUS, COSME, Horizon 2020 and the Employment and Social Innovation programme. The European Council stressed the importance of:

(a) adopting before the end of the year the different EU programmes which support the achievement of the Europe 2020 Strategy;

(b) Member States working with the Commission with a view to concluding their partnership agreements and operational programmes as soon as possible;

(c) rapidly implementing the Structural Funds as well as the programmes for the competitiveness of enterprises and SMEs (COSME) and for research and innovation (Horizon 2020), which have a particular importance in the context of supporting SMEs;

(d) accelerating the implementation of the project bonds pilot phase. The Commission intends to present its assessment by the end of 2013.

8. The European Council welcomed the report from the Commission and the EIB on the financing of the economy. It agreed on the following measures and welcomed the intention of the Commission and the EIB to implement them as a matter of priority and to present a comprehensive report on their implementation ahead of its October 2013 meeting, with quantitative objectives, instruments and a timetable:

(a) stepping up efforts by the EIB to support lending to the economy by making full use of the recent increase of EUR 10 billion in its capital. The European Council calls on the EIB to implement its plan to increase its lending activity in the EU by at least 40% over 2013-2015. To this effect, the EIB has already identified new lending opportunities of more than EUR 150 billion across a set of critical priorities such as innovation and skills, SME access to finance, resources efficiency and strategic infrastructures;

(b) expansion of joint risk-sharing financial instruments between the European Commission and the EIB to leverage private sector and capital markets investments in SMEs. These initiatives should ensure that the volume of new loans to SMEs across the EU is expanded, respecting

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the European Stability Mechanism (ESM). Work should continue so that, when an effective single supervisory mechanism is established, the European Stability Mechanism will, following a regular decision, have the possibility to recapitalise banks directly;

(d) the European Council welcomed the agreement reached in Council on the draft directive establishing a framework for the recovery and resolution of banks and invited the Council and Parliament to start negotiations with the aim of adopting the directive before the end of the year. It also called for the adoption before the end of the year of the proposal for a Deposit Guarantee Scheme;

(e) a fully effective SSM requires a Single Resolution Mechanism (SRM) for banks covered by the SSM. The European Council looks forward to the Commission's proposal establishing an SRM with a view to reaching agreement in the Council by the end of the year so that it can be adopted before the end of the current parliamentary term. The Commission intends to adopt revised state aid rules for the financial sector in the summer of 2013 with a view to ensuring a level playing-field in resolution decisions involving public support.

14. Work must be pursued on all the building blocks of a reinforced EMU, as they are closely interrelated:

(a) it is necessary to put into place a more effective framework for the coordination of economic policies in line with Article 11 of the Treaty on Stability, Coordination and Governance and with the principle of subsidiarity. Following its communication of 20 March, the Commission intends to present a proposal on the ex ante coordination of major economic reforms in the autumn;

(b) while there are convergences around the key principles underpinning the concepts of mutually agreed contracts and associated solidarity mechanisms, further work is required on these issues in the coming months, drawing in particular on the forthcoming Commission communication on economic policy coordination;

(c) the social dimension of the EMU should be strengthened. As a first step, it is important to better monitor and take into account the social and labour market situation within EMU, notably by using appropriate social and employment indicators within the European semester. It is also important to ensure better coordination of employment and social policies, while fully respecting national competences. The role of the social partners and social dialogue, including at national level, is also key. The Commission will present a communication on the social dimension of the EMU shortly.

15. Following close consultations with the Member States, the European Council will return to all these issues. In October 2013, it will look in particular at indicators and policy areas to be taken into account in the framework of a strengthened economic policy coordination and at the social dimension of EMU. The discussion will be continued in December 2013, with the objective of taking decisions on these issues, in particular on the main features

its October 2013 meeting a detailed work programme comprising further and, where appropriate, new concrete proposals to reduce the overall burden of regulation and foster competitiveness, while always taking account of the need for the proper protection of consumers and employees. It called for continued efforts to make EU and national regulation more efficient, consistent and simple. It will return to these issues in the light of those proposals.

Looking to its thematic discussions in October 2013 to give renewed impulse in the fields of innovation, digital single market and services, the European Council invited the Commission to present its report on the peer review of the Services Directive as well as on the Licenses for Europe process ahead of that meeting.

11. Recalling the role to be played by trade in boosting growth and jobs, the European Council welcomed the launch of negotiations on a transatlantic trade and investment partnership with the United States.

III. COMPLETING THE ECONOMIC AND MONETARY UNION

12. Since the presentation last December of the report "Towards a genuine EMU" work has been advancing on the four key building blocks to strengthen the architecture of the EMU. Concrete new steps towards strengthening economic governance will need to be accompanied by further steps towards stronger democratic legitimacy and accountability at the level at which decisions are taken and implemented. This process will build on the EU's institutional framework, in full respect of the integrity of the single market, while ensuring a level playing field between EU Member States, including via a fair balance between home and host Member States. It will be open and transparent towards Member States not using the single currency.

13. In the short run, the key priority is to complete the Banking Union in line with the European Council conclusions of December 2012 and March 2013. This is key to ensuring financial stability, reducing financial fragmentation and restoring normal lending to the economy. The European Council recalled that it is imperative to break the vicious circle between banks and sovereigns and underlined the following points:

(a) the new rules on capital requirements for banks (CRR/CRD) and the new Single Supervisory Mechanism (SSM) will have a key role in ensuring the stability of the banking sector;

(b) in the transition towards the SSM, a balance sheet assessment will be conducted, comprising an asset quality review and subsequently a stress test. In this context, Member States taking part in the SSM will make all appropriate arrangements, including the establishment of national backstops, ahead of the completion of this exercise;

(c) the Eurogroup has agreed on the main features of the operational framework for direct bank recapitalisation by

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19. On enlargement, the European Council endorsed the Council 's conclusions and recommendations of 25 June 2013. It decided to open accession negotiations with Serbia. The first intergovernmental conference will be held in January 2014 at the very latest. Prior to this, the negotiating framework will be adopted by the Council and confirmed by the European Council at its usual session on enlargement.

20. The Decisions authorising the opening of negotiations on a Stabilisation and Association Agreement between the European Union and Kosovo (1) have been adopted.

21. The European Council will hold a discussion at its June 2014 meeting to define strategic guidelines for legislative and operational planning in the area of freedom, security and justice (pursuant to Article 68 TFEU). In preparation for that meeting, the incoming Presidencies are invited to begin a process of ref lection within the Council. The Commission is invited to present appropriate contributions to this process.

ANNEX

DOCUMENTS ENDORSED BY THE EUROPEAN COUNCIL• Councilreportof25June2013onthe2013Country

Specific Recommendations• ConclusionsadoptedbytheCouncilon25June2013on

enlargement• ConclusionsadoptedbytheCouncilon28May2013on

the annual report on EU Official Development Assistance• ConclusionsadoptedbytheCouncilon25June2013on

"The Overarching Post-2015 Agenda" • ActionPlan for the implementation of theMaritime

Strategy for the Atlantic Ocean area endorsed by the Council on 25 June 2013

(1) This designation is without prejudice to positions on status, and is in line with UNSCR 1244/1999 and the ICJ Opinion on the Kosovo declaration of independence.

of contractual arrangements and of associated solidarity mechanisms. Any such measures would be voluntary for those outside the single currency and be fully compatible with the Single Market in all aspects.

16. The European Council discussed Latvia's application to adopt the euro. It congratulated Latvia on the convergence it has achieved, based on sound economic, fiscal and financial policies, and welcomed its fulfilment of all the convergence criteria as set out in the Treaty. It welcomed the Commission's proposal that Latvia adopt the euro on 1 January 2014.

IV. OTHER ITEMS

17. The European Council expressed its sympathy with those affected by the disastrous f loods that have hit Central Europe this month. Appropriate financial resources (e.g. Solidarity Fund, Structural Funds, Cohesion Fund) should be mobilised in order to support to the extent possible immediate relief and reconstruction efforts, as well as future preventive actions, in the most affected regions and Member States. It invited the Commission to react rapidly and constructively to requests presented by the affected Member States to ensure that support from EU funds for the most affected regions and Member States can be implemented without delay.

18. In February 2013 the European Council recognised the particular impact of the economic crisis on a number of Member States within the euro-area which had had a direct impact on their level of prosperity. To address this situation a number of additional allocations were made from the Structural Funds. At that time the macro economic assistance programme for Cyprus had not been decided. The government of Cyprus has since addressed a request for additional assistance. The European Council invited the European Parliament and the Council to examine the opportunities provided by the f lexibilities in the MFF, including the Flexibility Instrument, to address the particularly difficult situation of Cyprus, in the context of the annual budgetary procedure.

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I. DIGITAL ECONOMY, INNOVATION AND SERVICES

1. A strong digital economy is vital for growth and European competitiveness in a globalised world. To this end, all efforts must be made for Europe's industry to regain momentum in digital products and services. There is an urgent need for an integrated single digital and telecoms market, benefiting consumers and companies. As part of its growth strategy, Europe must boost digital, data-driven innovation across all sectors of the economy. Special consideration should be given to supporting the reduction of the digital gap among Member States.

Investing in the digital economy2. To tap the full potential of the digital economy, to boost

productivity and create new economic activity and skilled jobs, Europe needs investment and the right regulatory framework. New investments should be promoted to accelerate the roll-out of infrastructure capable of achieving the broadband speed targets of the Digital Agenda for Europe, and to accelerate the deployment of new technologies, such as 4G, while maintaining technology neutrality. Legislative measures to reduce the cost of broadband roll-out should be adopted rapidly.

3. Several strategic technologies such as Big Data and Cloud computing are important enablers for productivity and better services. Cloud computing should improve access to data and simplify their sharing. Big Data aims to process, collect, store and analyse large amounts of data. EU action should provide the right framework conditions for a single market for Big Data and Cloud computing, in particular by promoting high standards for secure, high-quality and reliable cloud services. The European Commission and the Member States, with the support of the "European Cloud Partnership", should continue to make every effort to put Europe at the forefront of cloud adoption. The European Council calls for the establishment of a strong network of national digital coordinators which could play a strategic role in Cloud, Big Data and Open Data development.

4. The ongoing work to tackle tax evasion, tax fraud, aggressive tax planning, tax-base erosion and profit shifting is also important for the digital economy. Member States should further coordinate their positions where appropriate in order to achieve the best possible solution for Member States and the EU in the OECD/BEPS (Base Erosion and Profit Shifting) framework. In its ongoing VAT review, the Commission will also address issues which are specific to the digital economy, such as

EUROPEAN COUNCIL — 24– 25 OCTOBER 2013

CONCLUSIONS

Signs of economic recovery are visible but the EU needs to pursue its efforts to increase growth potential, enhance job creation and boost European competitiveness. Today the European Council focused on the digital economy, innovation and services. These areas have a particular potential for growth and jobs which must be rapidly mobilized. The European Council provided concrete guidance so as to take full advantage of the existing potential.The European Council also looked at different economic and social policy areas. It took stock of the implementation of the initiatives taken in June in the fight against youth unemployment and the financing of the economy, in particular of small and medium-sized enterprises, and agreed on additional measures. It gave a new impetus to better regulation.The European Council held an in-depth discussion on completing the Economic and Monetary Union. It focused in particular on enhanced economic policy coordination, strengthening the social dimension of the Economic and Monetary Union and completing the Banking Union. As decided in June, the European Council will return to all these elements in December with a view to taking decisions.The European Council looked ahead to the Eastern Partnership Summit which will be held in Vilnius on 28 and 29 November 2013.The European Council expressed its deep sadness at the recent tragic events in the Mediterranean in which hundreds of people lost their lives and decided to step up the Union's action so as to prevent such tragedies from happening again.

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differentiated tax rates for digital and physical products. The European Council welcomes the Commission's initiative to set up an expert group on taxation of the digital economy. The European Council will return to taxation-related issues at its December 2013 meeting.

promoting a consumer and business-friendly Digital Single market5. Overcoming fragmentation, promoting effective

competition and attracting private investment through an improved, predictable and stable EU-wide legal framework is crucial, while ensuring a high level of consumer protection and allowing Member States a degree of f lexibility to take additional consumer protection measures. In this context, the European Council welcomes the presentation by the Commission of the "Connected Continent" package and encourages the legislator to carry out an intensive examination with a view to its timely adoption. It underlines the importance of better coordinating the timing and conditions of spectrum assignment, while respecting national competences in this area.

6. The commitment to complete the Digital Single Market by 2015 has to be delivered on: today's market fragmentation hampers the release of the digital economy's full potential. This requires a comprehensive approach fostering innovation and competition in digital services.

7. No efforts should be spared to accelerate work on the pending legislative proposals, in particular the proposals on e-identification and trust services and on e-invoicing and payment services, so that they can be adopted by the end of the legislative period. There is also a need to address the bottlenecks in accessing one's "digital life" from different platforms which persist due to a lack of interoperability or lack of portability of content and data. This hampers the use of digital services and competition. An open and non-discriminatory framework must therefore be put in place to ensure such interoperability and portability without hindering development of the fast moving digital sphere and avoiding unnecessary administrative burden, especially for SME's. Providing digital services and content across the single market requires the establishment of a copyright regime for the digital age. The Commission will therefore complete its ongoing review of the EU copyright framework in Spring 2014. It is important to modernise Europe's copyright regime and facilitate licensing, while ensuring a high level of protection of intellectual property rights and taking into account cultural diversity.

8. It is important to foster the trust of citizens and businesses in the digital economy. The timely adoption of a strong EU General Data Protection framework and the Cyber-security Directive is essential for the completion of the Digital Single Market by 2015.

9. The modernisation of public administrations should continue through the swift implementation of services such as e-government, e-health, e-invoicing and

e-procurement. This will lead to more and better digital services for citizens and enterprises across Europe, and to cost savings in the public sector. Open data is an untapped resource with a huge potential for building stronger, more interconnected societies that better meet the needs of the citizens and allow innovation and prosperity to f lourish. Interoperability and the re-use of public sector information shall be promoted actively. EU legislation should be designed to facilitate digital interaction between citizens and businesses and the public authorities. Efforts should be made to apply the principle that information is collected from citizens only once, in due respect of data protection rules.

Improving skills10. Users must have the necessary digital skills. Many

European citizens and enterprises currently do not use IT sufficiently. This results in a growing difficulty in filling digital jobs. In 2011, the European Union was faced with 300 000 unfilled vacancies in the ICT sector; if this trend is not checked, there could be as many as 900 000 unfilled vacancies by 2015. This skills mismatch is detrimental to our economic and social policy objectives.

11. Concrete steps should be taken in order to redress this situation:

(a) part of the European Structural and Investment Funds (2014-2020) should be used for ICT education, support for retraining, and vocational education and training in ICT, including through digital tools and content, in the context of the Youth Employment Initiative;

(b) a higher degree of integration of digital skills in education, from the earliest stages of school to higher education, vocational education and training and lifelong learning should be ensured;

(c) the Grand Coalition for Digital Jobs should be strengthened to address skills mismatches by supporting targeted labour mobility schemes and the use of the newly developed classification of European Skills/Competences, qualifications and Occupations (ESCO);

(d) the Commission will further intensify work on the basis of the EU Skills Panorama for digital jobs in order to accelerate progress on pan-European competences frameworks for digital skills.

12. In all three areas - investments, Digital Single Market and improving skills - a strong commitment is vital if the objective of enhancing growth, competitiveness and jobs is to be achieved. The European Council calls on the Council and the Commission to take forward this agenda and will return to the matter in the course of 2014.

Innovation13. Investment in research and innovation fuels productivity

and growth and is key for job creation. Member States that have continued to invest in research and innovation have fared better in the current crisis than those that have not.

14. In February 2011, the European Council called for a strategic and integrated approach to boost innovation and

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Services and Trade 19. Services are a fundamental part of the Single Market. To

reap the full economic benefits, Member States urgently need to improve implementation of the Services Directive and thus speed up the opening of services markets. All opportunities should be seized in this respect; unjustified or disproportionate barriers should be removed in order to ensure a level playing-field on the services market. The European Council invites the Commission and the Council to provide yearly progress reports on national reforms on services, including in individual sectors, and invites the Commission to make proposals by March 2014.

20. The European Council welcomes the peer review of the Services Directive presented by the Commission. It agrees that all Member States should ensure systematic, thorough and robust proportionality assessments of their regulatory requirements. In particular, Member States should address disproportionate barriers. The European Council invites the Commission to provide additional guidance to Member States on the concept of proportionality and invites Member States to take full account of best practices.

21. The European Council stresses the importance of the mutual evaluation of regulated professions launched by the Commission and calls for swift progress. This exercise should identify the remaining barriers to access to professions in the Member States, assess the cumulative effect of all restrictions imposed on the same profession, and suggest appropriate action.

22. The European Council reiterates the importance of trade as an engine for growth and job creation, in line with its conclusions of February 2013. It welcomes the political agreement on the key elements of a Comprehensive Economic and Trade Agreement with Canada and looks forward to the swift examination by the European Parliament and the Council. This agreement will provide significant new opportunities for companies in the EU and in Canada and will give an important impetus to enhanced trade relations between both sides of the Atlantic.

II. ECONOMIC AND SOCIAL POLICY

Combating youth unemployment 23. The fight against youth unemployment remains a

key objective of the EU strategy to foster growth, competitiveness and jobs. The European Council recalls the need for the Youth Employment Initiative to be fully operational by January 2014, which will allow the first disbursements to beneficiaries to be made. It calls on the Member States to mobilise all efforts necessary to this end.

24. The European Council also calls for rapid implementation by the Member States of the Youth Guarantee and the Council declaration on the European Alliance for Apprenticeships. It points out that Member States

take full advantage of Europe's intellectual capital. It set out specific steps to achieve this. Two years on, a significant number of them are on track. Joint programming in research and innovation is developing. Annual monitoring of progress on innovation is taking place in the framework of the Europe 2020 strategy. The establishment of a Research and Innovation Observatory by the Commission is under way. A number of programmes providing funding to research and innovation are being finalised. As requested, the Commission recently proposed a single Indicator of Innovation Output which should allow for better monitoring.

15. The Union's intellectual and scientific potential does not always translate into new products and services that can be sold on markets. The main reasons for this commercialisation gap are: difficulties in accessing finance, market barriers and excessive red tape. The grouping of research institutes and industry ("clusters") can provide the ground for fruitful interaction between them and for the emergence of new products, services and industries.

16. Europe needs a better-coordinated use of tools such as grants, pre-commercial public procurement and venture capital, and an integrated approach from research and innovation to market deployment. Special attention should be paid to the role of the public sector in enabling systemic innovations, especially in the cleantech and biotech sectors. The 2010 Innovation Union f lagship initiative provides a number of valuable instruments which, combined with financing programmes, such as Competitiveness of Enterprises and SMEs (COSME) and Horizon 2020, including the Risk-Sharing Finance Facility, can support innovation and its impact on the market. The proposals for Joint Technology Initiatives in pharmaceuticals, new energy technologies, aeronautics, the bio-based economy and electronics should be adopted as soon as possible. Efforts should also continue at national level.

17. In order to obtain a full European Research Area by the end of 2014, it is important to accelerate structural reforms of national systems and to strengthen progress monitoring based on robust data provided by Member States. The progress report submitted by the Commission identifies some areas which require more efforts. In particular, we must improve the mobility and career prospects of researchers through adequate pensions solutions, transnational access to research infrastructures and open access to publicly funded research results and knowledge transfer as part of innovation strategies at national and European levels.

18. The European Council invites the Commission and the Member States to continue their efforts in the area of innovation and research. It will take stock of progress at its meeting in February 2014.

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regulatory fitness29. Regulation at Union level is necessary in order to ensure

that EU policy goals, including the proper functioning of the Single Market, are attained. This should be achieved with a maximum of transparency and simplicity and a minimum of costs while always taking account of the need for a proper protection of consumers, health, the environment and employees.

30. The European Council welcomes the recent Commission Communication on regulatory fitness (REFIT), which acknowledges work already undertaken in recent years to alleviate the burden of legislation, in particular for SMEs, and proposes ambitious further steps to make the EU regulatory framework lighter. The European Council calls on the Commission to make further substantial proposals in this field.

31. The European Council urges the Commission and the legislator to rapidly implement the REFIT programme, inter alia through simplification of existing EU law, by withdrawing proposals that are no longer needed and by repealing legislation that is out of date.

32. To this end, the European Council underlines the need to monitor progress by means of a comprehensive scoreboard to track progress at the European and national level and facilitate dialogue on regulatory fitness. It welcomes the steps taken by the Member States and the EU aimed at better identification of excessively burdensome regulation, noting in this respect the subsidiarity and proportionality principles. Substantial efforts are required in this respect, both at EU and national levels. The European Council looks forward to agreeing further steps in this direction at its June meeting and will return to the issue annually as part of the European Semester.

III. ECONOMIC AND MONETARY UNION 33. Following the December 2012 and June 2013 European

Council meetings, the European Council has focused its discussion on banking and economic union but will return to all issues in December 2013. This process builds on the EU's institutional framework, in full respect of the integrity of the single market, while ensuring a level playing-field between EU Member States, including via a fair balance between home and host Member States. It will be open and transparent towards Member States not using the single currency.

Strengthened economic policy coordination34. Strengthening economic governance is an ongoing

process in which significant progress has been achieved in recent years. The European Semester brings the elements together in an integrated process leading to the formulation of policy recommendations.

35. To promote strong, sustainable and inclusive economic growth in the Euro area, the coordination of economic policies needs to be further strengthened, notably by

benefiting from the Youth Employment Initiative need to adopt plans to tackle youth unemployment, including through the implementation of the "Youth Guarantee", before the end of 2013 in order to benefit rapidly from the initiative. In this context, the European Council welcomes the upcoming Paris Conference.

Financing of the economy25. All efforts should continue to restore normal lending

to the economy and facilitate financing of investment, particularly with respect to small and medium-sized enterprises (SMEs).

26. The programming negotiations of the European Structural and Investment Funds (ESIF) should be used to significantly increase the overall EU support from these funds to leverage-based financial instruments for SMEs in 2014-2020, while at least doubling support in countries where conditions remain tight. These instruments should be designed in a way which limits market fragmentation, ensures high leverage effects and quick uptake by the SMEs. This will help concentrate the funds adequately and expand the volume of new loans to SMEs.

27. The European Council takes note of the reports by the Commission and the EIB on the implementation of measures aimed at financing the economy and invites Member States to make good use of the opportunities provided. It reiterates its call to expand joint risk-sharing financial instruments between the Commission and the European Investment Bank (EIB) to leverage private sector and capital market investments in SMEs, with the aim of expanding the volume of new loans to SMEs across the EU. Work should be finalized to amend the Common Provisions Regulation to enable the use of guarantees. The new instruments should achieve high leverage effects and be attractive for private sector and capital markets investment. The EIB should start implementing them while work should start immediately on further developing tools for the future, especially on securitisation. While contributions to the SME initiative should remain voluntary, the European Council calls for the greatest possible participation by Member States. Participating Member States will inform the Commission and the EIB about their contributions by the end of the year. The new instruments should begin operating in January 2014 to accompany recovery, fight unemployment and reduce fragmentation in the initial years of the financial framework.

28. The role of the Union's budget in providing opportunities to SMEs is crucial. In this context, the European Council welcomes the agreement on the COSME and Horizon 2020 programmes and points out that their implementation is a matter of priority. It also encourages the legislator to work swiftly on the proposed legislation on long-term investment funds with a view to its adoption before the end of the legislative period.

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to ensure consistency of those policies in line with our common objectives.

39. The strengthened economic policy coordination and further measures to enhance the social dimension in the Euro area are voluntary for those outside the single currency and will be fully compatible with the Single Market in all aspects.

40. Finally, the European Council underscores the importance of enhancing the social dialogue involving the social partners both at Member State and European level, in particular in the context of the European Semester, with the objective of enhancing the ownership of its conclusions and recommendations across the Union.

Banking union41. The European Council has been actively steering the

process of establishing the Banking Union. It welcomes the final adoption by the Council of the Single Supervisory Mechanism and the European Banking Authority (EBA) Amending Regulations. This represents a decisive step towards the Banking Union. The European Council reiterates the principle of non-discrimination of Member States regarding banking supervision and resolution as stated by the European Council in October 2012 and reconfirms the agreed new voting arrangements in the EBA regulation for these matters, which is ref lecting an appropriate balance between the participating and non-participating Member States. The European Council also reconfirms its agreement that the review on the operation of the voting arrangements will take place from the date on which the number of non-participating Member States reaches four.

42. The Single Supervisory Mechanism is the first step towards the Banking Union. In November, the European Central Bank will launch a comprehensive assessment of the credit institutions of the Member States participating in the Single Supervisory Mechanism in line with the Regulation conferring specific tasks on the European Central Bank. This will be followed by a stress test of banks across the EU. The European Council considers that this exercise is key to reinforce confidence in the EU banking sector and to restore normal lending conditions to firms and households. The European Council expects full support and cooperation by the national authorities to ensure complete transparency and a rigorous approach, which is key for the credibility of the exercise.

43. In this context, the European Council recalls the urgency, for the Member States taking part in the Single Supervisory Mechanism, of establishing a coordinated European approach in preparation for the comprehensive assessment of credit institutions by the European Central Bank. Member States should make all appropriate arrangements, including national backstops, applying state aid rules. European instruments are available according to their agreed rules. The European Council asks the Council to develop this approach as a matter of urgency and to communicate it by the end of November, in line

increasing the level of commitment, ownership and implementation of economic policies and reforms in Euro area Member States, underpinned by strong democratic legitimacy and accountability at the level at which decisions are taken and implemented.

36. The European Council underlines that closer coordination of economic policies should be focused on policy areas where positive effects on competitiveness, employment and the functioning of the EMU are most prominent.

As a first step, the European Council will make a shared analysis of the economic situation in the Member States and in the Euro area as such. To this end, it will already hold a discussion in December following the publication of the Commission's Annual Growth Survey and the Alert Mechanism Report with the aim to agree, on the basis of the relevant indicators, on the main areas for coordination of economic policies and reforms.

This shared analysis will be based on an assessment of growth and job-enhancing policies and measures, including the performance of labour and product markets, the efficiency of the public sector, as well as research and innovation, education and vocational training, employment and social inclusion in the Euro area.

The Commission will also provide a first overview of the implementation of country-specific recommendations that will be a basis for the further monitoring of their implementation.

Work will be carried forward to strengthen economic policy coordination, with the objective of taking decisions in December on the main features of contractual arrangements and of associated solidarity mechanisms. This would engage all Euro area Member States but non-Euro area Member States may also choose to enter into similar arrangements. Any such measures must be fully compatible with the Single market in all aspects.

Social dimension 37. The European Council welcomes the European

Commission's Communication on the social dimension of the EMU as a positive step and restates the importance of employment and social developments within the European Semester. The use of an employment and social scoreboard in the Joint Employment Report and of employment and social indicators along the lines proposed by the Commission should be pursued, following appropriate work in the relevant Committees, for decision by the Council in December, confirmed by the European Council with the objective of using these new instruments as early as the 2014 European Semester. This wider range of indicators has the purpose of allowing a broader understanding on social developments.

38. The coordination of economic, employment and social policies will be further enhanced in line with existing procedures while fully respecting national competences. This requires more work to strengthen cooperation between the various Council configurations in order

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in the territory of the EU Member States but also in the countries of origin and transit, the fight against trafficking and smuggling of human beings should be stepped up. Furthermore, the European Council calls for the reinforcement of Frontex activities in the Mediterranean and along the Southeastern borders of the EU. Swift implementation by Member States of the new European Border Surveillance System (EUROSUR) will be crucial to help detecting vessels and illegal entries, contributing to protecting and saving lives at the EU's external borders.

48. The European Council invites the newly established Task Force for the Mediterranean, led by the European Commission and involving Member States, EU agencies and the EEAS, to identify – based on the principles of prevention, protection and solidarity – priority actions for a more efficient short term use of European policies and tools. The Commission will report to the Council at its meeting of 5-6 December 2013 on the work of the Task Force with a view of taking operational decisions. The Presidency will report to the European Council in December.

49. The European Council will return to asylum and migration issues in a broader and longer term policy perspective in June 2014, when strategic guidelines for further legislative and operational planning in the area of freedom, security and justice will be defined.

ANNEX

STATEMENT OF HEADS OF STATE OR GOVERNMENTThe Heads of State or Government discussed recent developments concerning possible intelligence issues and the deep concerns that these events have raised among European citizens. They underlined the close relationship between Europe and the USA and the value of that partnership. They expressed their conviction that the partnership must be based on respect and trust, including as concerns the work and cooperation of secret services.They stressed that intelligence gathering is a vital element in the fight against terrorism. This applies to relations between European countries as well as to relations with the USA. A lack of trust could prejudice the necessary cooperation in the field of intelligence gathering.The Heads of State or Government took note of the intention of France and Germany to seek bilateral talks with the USA with the aim of finding before the end of the year an understanding on mutual relations in that field. They noted that other EU countries are welcome to join this initiative. They also pointed to the existing Working Group between the EU and the USA on the related issue of data protection and called for rapid and constructive progress in that respect.

with the goal that the European Central Bank completes the comprehensive assessment of credit institutions in a timely manner.

It also calls on the Eurogroup to finalise guidelines for European Stability Mechanism direct recapitalisation so that the European Stability Mechanism can have the possibility to recapitalise banks directly, following the establishment of the Single Supervisory Mechanism.

44. Completing the Banking Union is urgent and requires not only a Single Supervisory Mechanism but also a Single Resolution Mechanism. The European Council calls on the legislators to adopt the Bank Recovery and Resolution Directive and the Deposit Guarantee Directive by the end of the year. The European Council underlines the need to align the Single Resolution Mechanism and the Bank Recovery and Resolution Directive as finally adopted. It also underlines the commitment to reach a general approach by the Council on the Commission's proposal for a Single Resolution Mechanism by the end of the year in order to allow for its adoption before the end of the current legislative period.

IV. EASTERN PARTNERSHIP45. The European Council looks forward to the Eastern

Partnership Summit in Vilnius on 28 and 29 November 2013. It underlines the importance of the Eastern Partnership for building a common area of democracy, prosperity and stability across the European continent. The European Council reiterates the European Union's willingness to sign the Association Agreement, including the Deep and Comprehensive Free Trade Area, with Ukraine at the Vilnius Summit, provided there is determined action and tangible progress in line with the Council Conclusions of 10 December 2012, and to launch its provisional application. It confirms the European Union's readiness to initial similar agreements with the Republic of Moldova and Georgia at the Vilnius Summit, with the aim of signing them by Autumn 2014.

V. MIGRATION FLOWS46. The European Council expresses its deep sadness at the

recent and dramatic death of hundreds of people in the Mediterranean which shocked all Europeans. Based on the imperative of prevention and protection and guided by the principle of solidarity and fair sharing of responsibility, determined action should be taken in order to prevent the loss of lives at sea and to avoid that such human tragedies happen again.

47. The European Council underlines the importance of addressing root causes of migration f lows by enhancing cooperation with the countries of origin and transit, including through appropriate EU development support and an effective return policy. It also calls for closer cooperation with the relevant international organisations, in particular UNHCR and the International Organisation of Migration in the third countries concerned. Not only

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I. COMMON SECURITY AND DEFENCE POLICY

1. Defence matters. An effective Common Security and Defence Policy helps to enhance the security of European citizens and contributes to peace and stability in our neighbourhood and in the broader world. But Europe's strategic and geopolitical environment is evolving rapidly. Defence budgets in Europe are constrained, limiting the ability to develop, deploy and sustain military capabilities. Fragmented European defence markets jeopardise the sustainability and competitiveness of Europe's defence and security industry.

2. The EU and its Member States must exercise greater responsibilities in response to those challenges if they want to contribute to maintaining peace and security through CSDP together with key partners such as the United Nations and NATO. The Common Security and Defence Policy (CSDP) will continue to develop in full complementarity with NATO in the agreed framework of the strategic partnership between the EU and NATO and in compliance with the decision-making autonomy and procedures of each. This requires having the necessary means and maintaining a sufficient level of investment. Today, the European Council is making a strong commitment to the further development of a credible and effective CSDP, in accordance with the Lisbon Treaty and the opportunities it offers. The European Council calls on the Member States to deepen defence cooperation by improving the capacity to conduct missions and operations and by making full use of synergies in order to improve the development and availability of the required civilian and military capabilities, supported by a more integrated, sustainable, innovative and competitive European Defence Technological and Industrial Base

(EDTIB). This will also bring benefits in terms of growth, jobs and innovation to the broader European industrial sector.

3. In response to the European Council conclusions of December 2012, important work has been undertaken by the Commission, the High Representative, the European Defence Agency and the Member States. The Council adopted substantial conclusions on 25 November 2013, which the European Council endorses.

4. On that basis the European Council has identified a number of priority actions built around three axes: increasing the effectiveness, visibility and impact of CSDP; enhancing the development of capabilities and strengthening Europe's defence industry.

a) Increasing the effectiveness, visibility and impact of CSDP

5. In recent years progress has been made in a number of areas relating to CSDP. The numerous civilian and military crisis management missions and operations throughout the world are a tangible expression of the Union's commitment to international peace and security. Through CSDP, the Union today deploys more than 7000 staff in 12 civilian missions and four military operations. The European Union and its Member States can bring to the international stage the unique ability to combine, in a consistent manner, policies and tools ranging from diplomacy, security and defence to finance, trade, development and justice. Further improving the efficiency and effectiveness of this EU Comprehensive Approach, including as it applies to EU crisis management, is a priority. In this context, the European Council welcomes the presentation of the joint communication from the Commission and the High Representative.

EUROPEAN COUNCIL — 19– 20 DECEMBER 2013

CONCLUSIONS

For the first time since the entry into force of the Lisbon Treaty, the European Council held a thematic debate on defence. It identified priority actions for stronger cooperation. This debate was preceded by a meeting with the NATO Secretary-General. He presented his assessment of current and future security challenges and welcomed the ongoing efforts and commitments by the EU and its Member States as being compatible with, and beneficial to NATO.The European Council welcomed the general approach reached by the Council on the Single Resolution Mechanism, which will be a cornerstone of the Banking Union. The European Council reviewed the economic situation and the progress in implementing the Compact for Growth, Jobs and Competitiveness. The European Council also identified the main features of the Partnerships for Growth, Jobs and Competitiveness to support structural reform, with a view to concluding discussions by October next year.

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and opportunities arising for the Union, following consultations with the Member States.

b) Enhancing the development of capabilities10. Cooperation in the area of military capability development

is crucial to maintaining key capabilities, remedying shortfalls and avoiding redundancies. Pooling demand, consolidating requirements and realising economies of scale will allow Member States to enhance the efficient use of resources and ensure interoperability, including with key partner organisations such as NATO. Cooperative approaches whereby willing Member States or groups of Member States develop capabilities based on common standards or decide on common usage, maintenance or training arrangements, while enjoying access to such capabilities, will allow participants to benefit from economies of scale and enhanced military effectiveness.

11. The European Council remains committed to delivering key capabilities and addressing critical shortfalls through concrete projects by Member States, supported by the European Defence Agency. Bearing in mind that the capabilities are owned and operated by the Member States, it welcomes :•thedevelopmentofRemotelyPilotedAircraftSystems

(RPAS) in the 2020-2025 timeframe: preparations for a programme of a next-generation European Medium Altitude Long Endurance RPAS; the establishment of an RPAS user community among the participating Member States owning and operating these RPAS; close synergies with the European Commission on regulation (for an initial RPAS integration into the European Aviation System by 2016); appropriate funding from 2014 for R&D activities;

•the development of Air-to-Air refuelling capacity:progress towards increasing overall capacity and reducing fragmentation, especially as regards the establishment of a Multi-Role Tanker Transport capacity, with synergies in the field of certification, qualification, in-service support and training;

•SatelliteCommunication:preparationsforthenextgeneration of Governmental Satellite Communication through close cooperation between the Member States, the Commission and the European Space Agency; a users' group should be set up in 2014;

•Cyber:developingaroadmapandconcreteprojectsfocused on training and exercises, improving civil/military cooperation on the basis of the EU Cybersecurity Strategy as well as the protection of assets in EU missions and operations.

12. Cooperation should be facilitated by increased transparency and information sharing in defence planning, allowing national planners and decision-makers to consider greater convergence of capability needs and timelines. To foster more systematic and long-term cooperation the European Council invites the High Representative and the European Defence Agency to put

6. The Union remains fully committed to working in close collaboration with its global, transatlantic and regional partners. Such collaboration should be further developed in a spirit of mutual reinforcement and complementarity.

7. The European Council emphasises the importance of supporting partner countries and regional organisations, through providing training, advice, equipment and resources where appropriate, so that they can increasingly prevent or manage crises by themselves. The European Council invites the Member States, the High Representative and the Commission to ensure the greatest possible coherence between the Union's and Member States' actions to this effect.

8. The EU and its Member States need to be able to plan and deploy the right civilian and military assets rapidly and effectively. The European Council emphasises the need to improve the EU rapid response capabilities, including through more f lexible and deployable EU Battle groups as Member States so decide. The financial aspects of EU missions and operations should be rapidly examined, including in the context of the Athena mechanism review, with a view to improving the system of their financing, based on a report from the High Representative. The European Council invites the Commission, the High Representative and the Member States to ensure that the procedures and rules for civilian missions enable the Union to be more f lexible and speed up the deployment of EU civilian missions.

9. New security challenges continue to emerge. Europe's internal and external security dimensions are increasingly interlinked. To enable the EU and its Member States to respond, in coherence with NATO efforts, the European Council calls for:•anEUCyberDefencePolicyFrameworkin2014,on

the basis of a proposal by the High Representative, in cooperation with the Commission and the European Defence Agency;

•anEUMaritimeSecurityStrategybyJune2014,onthebasis of a joint Communication from the Commission and the High Representative, taking into account the opinions of the Member States, and the subsequent elaboration of action plans to respond to maritime challenges;

•increasedsynergiesbetweenCSDPandFreedom/Security/Justice actors to tackle horizontal issues such as illegal migration, organised crime and terrorism;

•progressindevelopingCSDPsupportforthirdstatesand regions, in order to help them to improve border management;

•furtherstrengtheningcooperationto tackleenergysecurity challenges.

The European Council invites the High Representative, in close cooperation with the Commission, to assess the impact of changes in the global environment, and to report to the Council in the course of 2015 on the challenges

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Technology (R&T) expertise, especially in critical defence technologies. The European Council invites the Member States to increase investment in cooperative research programmes, in particular collaborative investments, and to maximise synergies between national and EU research. Civilian and defence research reinforce each other, including in key enabling technologies and on energy efficiency technology. The European Council therefore welcomes the Commission's intention to evaluate how the results under Horizon 2020 could also benefit defence and security industrial capabilities. It invites the Commission and the European Defence Agency to work closely with Member States to develop proposals to stimulate further dual use research. A Preparatory Action on CSDP-related research will be set up, while seeking synergies with national research programmes whenever possible.

Certification and standardisation19. Developing standards and certification procedures for

defence equipment reduces costs, harmonises demand and enhances interoperability. The European Defence Agency and the Commission will prepare a roadmap for the development of defence industrial standards by mid-2014, without duplicating existing standards, in particular NATO standards. Together with the Commission and Member States, the European Defence Agency will also develop options for lowering the costs of military certification, including by increasing mutual recognition between EU Member States. It should report to the Council on both issues by mid 2014.

Smes20. SMEs are an important element in the defence supply

chain, a source of innovation and key enablers for competitiveness. The European Council underlines the importance of cross-border market access for SMEs and stresses that full use should be made of the possibilities that EU law offers on subcontracting and general licensing of transfers and invites the Commission to investigate the possibilities for additional measures to open up supply chains to SME's from all Member States. Supporting regional networks of SMEs and strategic clusters is also critically important. The European Council welcomes the Commission proposals to promote greater access of SMEs to defence and security markets and to encourage strong involvement of SMEs in future EU funding programmes.

Security of Supply21. The European Council emphasises the importance of

Security of Supply arrangements for the development of long-term planning and cooperation, and for the functioning of the internal market for defence. It welcomes the recent adoption within the European Defence Agency of an enhanced Framework Arrangement on Security of Supply and calls on the Commission to develop with Member States and in cooperation with the High Representative and the European Defence Agency a roadmap for a comprehensive EU-wide Security of Supply

forward an appropriate policy framework by the end of 2014, in full coherence with existing NATO planning processes.

13. The European Council welcomes the existing cooperative models, such as the European Air Transport Command (EATC), and encourages Member States to explore ways to replicate the EATC model in other areas.

14. The European Council welcomes the progress achieved in cooperation through the European Defence Agency Code of Conduct on Pooling and Sharing. It encourages the further development of incentives for and innovative approaches to such cooperation, including by investigating non market-distorting fiscal measures in accordance with existing European law. It invites the European Defence Agency to examine ways in which Member States can cooperate more effectively and efficiently in pooled procurement projects, with a view to reporting back to the Council by the end of 2014.

15. Taking into account the frequent recourse to missions which are civilian in nature, the European Council calls for the enhanced development of civilian capabilities and stresses the importance of fully implementing the Civilian Capability Development Plan.

c) Strengthening Europe's defence industry16. Europe needs a more integrated, sustainable, innovative

and competitive defence technological and industrial base (EDTIB) to develop and sustain defence capabilities. This can also enhance its strategic autonomy and its ability to act with partners. The EDTIB should be strengthened to ensure operational effectiveness and security of supply, while remaining globally competitive and stimulating jobs, innovation and growth across the EU. These efforts should be inclusive with opportunities for defence industry in the EU, balanced and in full compliance with EU law. The European Council stresses the need to further develop the necessary skills identified as essential to the future of the European defence industry.

17. A well-functioning defence market based on openness, equal treatment and opportunities, and transparency for all European suppliers is crucial. The European Council welcomes the Commission communication "Towards a more competitive and efficient defence and security sector". It notes the intention of the Commission to develop, in close cooperation with the High Representative and the European Defence Agency, a roadmap for implementation. It stresses the importance of ensuring the full and correct implementation and application of the two defence Directives of 2009, inter alia with a view to opening up the market for subcontractors from all over Europe, ensuring economies of scale and allowing a better circulation of defence products.

research – dual-use18. To ensure the long-term competitiveness of the European

defence industry and secure the modern capabilities needed, it is essential to retain defence Research &

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Policies fostering innovation and leading to productivity gains remain crucial.

Implementation of the Compact for Growth and Jobs26. The Compact for Growth and Jobs agreed in June

2012 remains one of the EU's major tools aimed at re-launching growth, investment and employment as well as making Europe more competitive. The implementation of the Compact remains the key element to fulfil these objectives. While substantial progress has been achieved in a number of areas, efforts should continue to ensure that the potential of the Compact is used to its fullest extent. This should be kept under regular review by the Council. The European Council also welcomes the adoption of the 2014-2020 Multiannual Financial Framework and associated financial programmes which support the achievement of the Europe 2020 Strategy.

The fight against youth unemployment remains a key objective of the EU strategy to foster growth, competitiveness and jobs. In this context, the European Council calls on Member States that have not yet submitted their Youth Guarantee Implementation Plans to do so without delay. It recalls its commitment to make the Youth Employment Initiative (YEI) fully operational by January 2014.

Restoring normal lending to the economy, in particular to SMEs, remains a priority. The European Council welcomes the implementation of the EIB capital increase enabling the bank to step up its lending across the EU by 38%, to EUR 62 billion this year. It also welcomes the support by the EIB Group in 2013 of EUR 23.1 billion for SME businesses and mid-cap companies throughout the EU 28. In line with its October 2013 conclusions, the European Council reiterates its call to launch the SME initiative in January 2014, while work should continue on further developing tools for the future. It calls on the Member States participating in the SME initiative to inform the Commission and the EIB about their contributions by the end of the year. Against this background, it welcomes the EIB's new mandate to the European Investment Fund (EIF) of up to EUR 4 billion and calls on the Commission and the EIB to further enhance the EIF capacity through an increase in its capital with a view to reaching final agreement by May 2014.

The European Council calls for enhanced efforts in particular as regards the swift adoption of remaining legislation under the Single Market Acts I and II, and the swift implementation of the measures they contain. It specifically calls on the co-legislators to swiftly come to an agreement on the last two outstanding legislative proposals under Single Market Act I ("posting of workers" and "e-identification").

The European Council also calls for further action to reduce the burden of regulation through the implementation and further development of the REFIT programme and looks forward to agreeing further steps in

regime, which takes account of the globalised nature of critical supply chains.

d) Way forward22. The European Council invites the Council, the

Commission, the High Representative, the European Defence Agency and the Member States, within their respective spheres of competence, to take determined and verifiable steps to implement the orientations set out above. The European Council will assess concrete progress on all issues in June 2015 and provide further guidance, on the basis of a report from the Council drawing on inputs from the Commission, the High Representative and the European Defence Agency.

II. ECONOMIC AND SOCIAL POLICY23. The European Council welcomes the 2014 Annual Growth

Survey and the Alert Mechanism Report presented by the Commission. It acknowledges that while the economic recovery is still modest, uneven and fragile, the economic outlook is gradually becoming more positive. Differentiated, growth-friendly fiscal consolidation, internal rebalancing and banks' balance sheet repair are all further progressing. Unemployment has stabilised, albeit at unacceptably high levels. Determined and ambitious implementation of agreed policies will support economic recovery and job creation in 2014 and 2015.

24. Member States and the European Union will continue to take determined action to promote sustainable growth, jobs and competitiveness in accordance with the five priorities set out in the Annual Growth Survey.

25. The Annual Growth Survey identifies areas where important challenges prevail and where further progress is needed. Specific attention should be given to enhancing the functioning and f lexibility of the single market for products and services, improving the business environment, and further repairing banks' balance sheets with a view to addressing financial fragmentation and restoring normal lending to the economy. Priority should be given to enhancing competitiveness, supporting job creation and fighting unemployment, particularly youth unemployment including through the full implementation of the youth guarantee, and to the follow-up of reforms regarding the functioning of labour markets.

Policies should focus in particular on:— reinforcing tax and other incentives for job creation,

including shifting taxes away from labour;— extending working lives, increasing labour market

participation, stepping up active labour market measures and continuing to modernize education and training systems, including life-long learning and vocational training;

— ensuring that labour cost developments are consistent with productivity gains;

— addressing skills mismatches;— increasing labour mobility.

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partnerships for Growth, Jobs and Competitiveness30. Significant progress in economic governance has been

achieved in recent years. The Europe 2020 Strategy and the European Semester constitute an integrated process of policy coordination to promote smart, sustainable and inclusive growth in Europe. In the euro area, the coordination of economic policies needs to be further strengthened to ensure both convergence within the EMU and higher levels of sustainable growth. Closer coordination of economic policies will help detect economic vulnerabilities at an early stage, and allow for their timely correction.

31. To achieve this, it is essential to increase the level of commitment, ownership and implementation of economic policies and reforms in the euro area Member States, underpinned by strong democratic legitimacy and accountability at the level at which decisions are taken and implemented.

32. In this context, it is crucial to facilitate and support Member States' reforms in areas which are key for growth, competitiveness and jobs and which are essential for the smooth functioning of the EMU as a whole. Partnerships based on a system of mutually agreed contractual arrangements and associated solidarity mechanisms would contribute to facilitate and support sound policies before countries face severe economic difficulties.

33. This system would be embedded in the European Semester, open to non euro area Member States and fully compatible with the Single Market in all aspects. It would apply to all euro area Member States except for the Member States subject to a macroeconomic adjustment programme.

34. Mutually agreed contractual arrangements would cover a broad range of growth and job-enhancing policies and measures, including the performance of labour and product markets, the efficiency of the public sector, as well as research and innovation, education and vocational training, employment and social inclusion. They would ref lect the economic policy priorities identified in the European Council's shared analysis of the economic situation in the Member States and the euro area as such, and take into account the country-specific recommendations.

35. The system of partnerships would include associated solidarity mechanisms offering support, as appropriate, to Member States engaging in mutually agreed contractual arrangements, thus helping investment in growth and job-enhancing policies.

36. Further work will be pursued on the basis of the following main features:

— Mutually agreed contractual arrangements will be a "home-grown" commitment which constitutes a partnership between the Member States, the Commission and the Council. The National Reform Programme submitted by each Member State in the context of the European Semester will be the basis for the mutually

this direction at its June meeting. It will return to the issue annually in the framework of the European Semester.

27. Recalling its conclusions of May 2013, the European Council calls for further progress at the global and EU levels in the fight against tax fraud and evasion, aggressive tax planning, base erosion and profit shifting (BEPS) and money laundering. The European Council welcomes work undertaken in the OECD and other international fora to respond to the challenge of taxation and ensure fairness and effectiveness of tax systems, in particular the development of a global standard for automatic exchange of information, so as to ensure a level playing-field. Building on the momentum towards more transparency in tax matters, the European Council calls on the Council to reach unanimous political agreement on the Directive on administrative cooperation in early 2014. It calls for speeding up the negotiations with European third countries and asks the Commission to present a progress report to its March meeting. In the light of this, the revised Directive on the taxation of savings income will be adopted by March 2014. The European Council takes note of the Council report to the European Council on tax issues, welcomes the establishment by the Commission of the High Level Expert Group on Taxation of the Digital Economy, and invites the Commission to propose effective solutions compatible with the functioning of the Internal Market, taking into account the work of the OECD, and to report back to the Council as soon as possible. Progress should also be made quickly towards agreement on amending the Parent-Subsidiary Directive.

The European Council calls for further progress on the disclosure of non-financial information by large groups.

III. ECONOMIC AND MONETARY UNION28. Since the presentation last December of the report

"Towards a genuine EMU" work has progressed on the key building blocks to strengthen the architecture of the Economic and Monetary Union (EMU). The European Council has focused its discussions on the banking and economic union. This process builds on the EU's institutional framework, in full respect of the integrity of the Single Market while ensuring a level playing-field between EU Member States. It will be open and transparent towards Member States not using the single currency.

Banking union29. The European Council welcomes the final agreement reached

by the legislators on the Deposit Guarantee Scheme directive and the Bank Recovery and Resolution Directive. It also welcomes the general approach and the specific conclusions reached by the Council on the Single Resolution Mechanism (SRM). Alongside the already adopted Single Supervisory Mechanism, the SRM will represent a crucial step towards the completion of the Banking Union. The European Council calls on the legislators to adopt the SRM before the end of the current legislative period

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40. Further measures to enhance the social dimension in the Euro area are voluntary for those outside the single currency and will be fully compatible with the Single Market in all aspects.

IV. MIGRATION FLOWS41. The European Council discussed the report of the

Presidency on the work of the Task Force for the Mediterranean in the wake of the recent tragedies off the coast of Lampedusa. The European Council reiterates its determination to reduce the risk of further tragedies of this kind from happening in the future.

The European Council welcomes the Commission communication which outlines thirty-eight operational actions. The European Council calls for the mobilisation of all efforts in order to implement actions proposed in the communication with a clear timeframe to be indicated by the Commission. Increased engagement with third countries in order to avoid that migrants embark on hazardous journeys towards the European Union should be a priority. Information campaigns, regional protection programmes, mobility partnerships and an effective return policy are important components of this comprehensive approach. The European Council reiterates the importance it attaches to resettlement for persons in need of protection and to contributing to global efforts in this field. It also calls for the reinforcement of FRONTEX border surveillance operations and actions to fight smuggling and human trafficking, as well as to ensure that appropriate solidarity is shown to all Member States under high migration pressure.

42. The European Council invites the Council to regularly monitor the implementation of the actions. It will return to the issue of asylum and migration in June 2014 in a broader and longer term policy perspective, when strategic guidelines for further legislative and operational planning in the area of freedom, security and justice will be defined. Ahead of that meeting the Commission is invited to report to the Council on the implementation of the actions set out in its communication.

V. ENLARGEMENT AND THE STABILISATION AND ASSOCIATION PROCESS

43. The European Council welcomes and endorses the conclusions adopted by the Council on 17 December on Enlargement and the Stabilisation and Association Process.

agreed contractual arrangements, also taking into account the Country Specific Recommendations. Mutually agreed contractual arrangements will be tailored to the needs of each individual Member State and will focus on a limited number of key levers for sustainable growth, competitiveness and job creation. The economic policy objectives and measures included in the mutually agreed contractual arrangements should be designed by the Member States, in accordance with their institutional and constitutional arrangements, and should ensure full national ownership through appropriate involvement of national parliaments, social partners, and other relevant stakeholders. They should be discussed and mutually agreed with the Commission, before being submitted to the Council for approval. The Commission will be responsible for keeping track of the agreed implementation of the mutually agreed contractual arrangements on the basis of jointly agreed timelines.

— On the associated solidarity mechanisms, work will be carried forward to further explore all options regarding the exact nature (e.g. loans, grants, guarantees), institutional form and volume of support while ensuring that these mechanisms do not entail obligations for the Member States not participating in the system of mutually agreed contractual arrangements and associated solidarity mechanisms; they should not become an income equalisation tool nor have an impact on the Multi-annual Financial Framework; they should respect the budgetary sovereignty of the Member States. Any financial support agreement associated with mutually agreed contractual arrangements will have a legally binding nature. The President of the EIB will be associated to this work.

37. The European Council invites the President of the European Council, in close cooperation with the President of the European Commission, to carry work forward on a system of mutually agreed contractual arrangements and associated solidarity mechanisms, on the basis of the orientations above, and to report to the October 2014 European Council with a view to reaching an overall agreement on both of these elements. The Member States will be closely associated to this work.

Social dimension of the emu38. The European Council reiterates the importance

of employment and social developments within the European Semester. On the basis of work undertaken by the Council, the European Council confirms the relevance of the use of a scoreboard of key employment and social indicators as described in the Joint Employment Report.

39. Work must also continue speedily on the use of employment and social indicators along the lines proposed by the Commission with the objective of using these new instruments in the 2014 European Semester. The use of this wider range of indicators will have the sole purpose of allowing a broader understanding of social developments.

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to stabilize the situation. As part of a comprehensive approach, the European Council confirms the EU's willingness to examine the use of relevant instruments to contribute towards the efforts under way to stabilise the country, including under the Common Security and Defence Policy (CSDP), in both its military and civilian dimensions. It invites the High Representative to present a proposal in this regard for a decision at the Council (Foreign Affairs) in January 2014.

eastern partnership47. The European Council welcomes the initialling by

Georgia and the Republic of Moldova of the Association Agreements, including Deep and Comprehensive Free Trade Areas, at the Eastern Partnership Summit in Vilnius on 28-29 November. The European Council reconfirms the European Union's readiness to sign these agreements as soon as possible and no later than the end of August 2014.

48. The European Union remains ready to sign the Association Agreement, including Deep and Comprehensive Free Trade Area, with Ukraine, as soon as Ukraine is ready. The European Council calls for restraint, respect for human and fundamental rights and a democratic solution to the political crisis in Ukraine that would meet the aspirations of the Ukrainian people. The European Council emphasizes the right of all sovereign States to make their own foreign policy decisions without undue external pressure.

VII. OTHER ITEMS

energy49. The European Council welcomes the Council's reports

on the implementation of the internal energy market and on external energy relations. In this context, it emphasises the need for rapid actions implementing the guidelines set by the European Council in May 2013, including the intensification of work on electricity interconnections between Member States. The European Council will return to energy policy at the March European Council.

eu Strategy for the alpine region50. Recalling its conclusions of June 2011 and the Council

Conclusions on the added value of macro-regional strategies of October 2013, the European Council invites the Commission, in cooperation with Member States, to elaborate an EU Strategy for the Alpine Region by June 2015.

VI. EXTERNAL RELATIONS

9th WTo ministerial conference44. The European Council welcomes the successful outcome

of the 9th WTO ministerial conference in Bali. In particular, the new Trade Facilitation Agreement will bring substantial benefits to all WTO members and will stimulate the creation of new jobs and growth. This outcome also contains important decisions to promote the integration of developing countries, especially LDCs, into the world trading system. The European Council reiterates its support for the multilateral trading system and looks forward to a further acceleration of negotiations with a view to concluding the Doha round.

Syria45. The European Council notes the announcement by

UNSG Ban Ki-Moon to convene a conference on Syria on 22 January 2014 to achieve a genuine and inclusive democratic transition in Syria, as outlined in the Geneva communiqué of 30 June 2012. It is deeply concerned by the continuing dire humanitarian situation in Syria and the severe impact of the crisis on neighbouring countries. In view of the Syria pledging conference on 15 January 2014 in Kuwait, the European Council recalls the lead role of the EU in spearheading international aid efforts with over EUR 2 billion mobilised since the beginning of the crisis. The EU is supporting the work of humanitarian organisations, notably the UN agencies. The European Council welcomes the signature this week of the biggest ever single EU humanitarian financial allocation. It confirms the commitment of the EU to continue to advocate for humanitarian access inside Syria to help those in need and to mobilise adequate funding building on a comprehensive aid strategy, and calls for further measures to improve the effectiveness of EU support. The European Council also calls on other major international donors to step up and assume their responsibilities.

Central african republic46. The European Council is extremely concerned by the

continuously deteriorating crisis in the Central African Republic and by its severe humanitarian and human rights consequences. It welcomes the crucial French military intervention, based on the United Nations Security Council resolution 2127 (2013), in support of the African forces to help restore security as well as the consistent commitment of its African partners

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The European Council in 2013

FEBRUARY 2014

doi:10.2860/73472

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