In 2024, the European Union reached significant milestones in its efforts to strengthen the economy and foster resilience in response to recent global challenges. At the halfway point of the NextGenerationEU recovery plan, the EU assessed its impact across the Member States, while the latter continued to make progress in implementing their recovery and resilience plans. Additionally, the reformed economic governance framework entered into force and progress was made on tax reforms and modernising the customs union. All of these reforms helped to enhance long-term competitiveness and promote economic growth while ensuring debt sustainability. The EU also implemented new frameworks to address climate risks, tax evasion and corporate sustainability. These initiatives demonstrate the EU’s commitment to sustainable growth, innovation and global leadership, ensuring Member States remain competitive while navigating economic, environmental and social transitions.

Trends

In 2024, the EU economy resumed gradual growth - open a new tab., with gross domestic product increasing by 0.9 %. Headline inflation declined to 2.6 %, down significantly from 6.4 % in 2023. Over the next two years, economic activity is set to accelerate amid a further slowdown in inflation. The EU labour market remained robust, with employment expanding at a sustained pace and the unemployment rate reaching a historic low of 5.9 % in October.

However, uncertainty and risks have intensified, driven by escalating geopolitical tensions (see Chapters 1 and 8) and domestic political fragmentation. The increasing frequency and severity of natural hazards (see Chapter 4) also pose challenges to economic activity.

The success of the Recovery and Resilience Facility

In 2021, the EU created NextGenerationEU - open a new tab., an unprecedented plan that would unlock funds to help Member States recover from the economic impact of the COVID-19 pandemic and become more resilient. Since then, the plan has also been able to address the socioeconomic challenges brought about by Russia’s war of aggression against Ukraine, such as the energy crisis.

The largest part of these NextGenerationEU funds is distributed to Member States through the Recovery and Resilience Facility - open a new tab. (RRF). The RRF is designed to support Member States’ socioeconomic recovery and increase their competitiveness, while simultaneously helping them with their green and digital transitions. Funding is disbursed on the basis of how well Member States implement the reforms and investments they have laid out in their respective recovery and resilience plans.

2024 marked the halfway point of the recovery plan - open a new tab., and as such it was time to evaluate how well it has fared. The evaluation - open a new tab. showed that NextGenerationEU enabled the EU economy to return to pre-pandemic output levels by the third quarter of 2021 – much faster than after the 2007–2008 economic and financial crisis, when it took seven years to fully recover. Thanks to RRF spending, the EU’s gross domestic product was also 0.4 % higher in 2022 than it would have been in the absence of this spending.

The evaluation also found that NextGenerationEU has the potential to increase the EU’s real gross domestic product by up to 1.4 % in 2026, compared to a scenario without the plan. This does not include the positive effects of the reforms being made through the RRF, which will gradually become more visible over the next few years.

Another measure of RRF implementation is the amount of funds paid out. By the end of 2024, €306 billion, or 47 % of the committed funds, had been disbursed.

The new economic governance framework

The EU’s most ambitious and far-reaching reform of its economic governance framework since the 2007–2008 crisis entered into force in 2024. This framework comprises the rules and procedures governing macroeconomic policies in the Member States.

The reformed framework, which is currently being implemented, ensures that Member States’ economies are stable and working toward common goals, such as preventing excessive debt and deficits, while promoting sustainable and inclusive growth through reforms and investment. Achieving the green and digital transitions while also strengthening the EU’s resilience and competitiveness requires significant and sustained investment, including by public-sector entities.

The reform addresses shortcomings in the old framework: it is simpler, more transparent and more effective, with greater national involvement and better enforcement. The new framework also differentiates between Member States based on their individual situations and allows for a slower fiscal adjustment if it is backed by reforms and investment commitments that promote growth, fiscal sustainability and EU priorities. This approach simultaneously avoids the tendency of fiscal policy to amplify economic fluctuations, and instead stabilises the economy.

At the heart of the new framework are medium-term fiscal structural plans, which integrate fiscal, reform and investment objectives into a unified approach. This coherence streamlines the process and aligns national reform and investment efforts with the RRF, ensuring consistency between national and EU policies. The plans emphasise Member States’ ownership, providing them with greater flexibility in defining their fiscal adjustment paths and their reform and investment commitments.

The European Semester

The European Semester is a yearly process in which the EU identifies the most pressing economic and social challenges facing Member States and provides policy guidance to help them reach their full potential.

The 2024 European Semester spring package - open a new tab. focused on the long-term competitiveness and prosperity of the EU and its Member States. It also took stock of the Member States’ implementation of their recovery and resilience plans and cohesion-policy programmes. Based on this analysis, the Commission proposed country-specific recommendations to guide the Member States in addressing key challenges.

Additionally, the EU intensified its efforts to reduce social disparities among regions and Member States and to diversify energy supplies. For the first time, the Semester framework included a strengthened assessment of the progress made on implementing the principles of the European Pillar of Social Rights - open a new tab., along with a framework - open a new tab. to identify risks to social convergence. This analysis, included in the Joint Employment Report 2024 - open a new tab., assessed labour market functioning, along with skills and social challenges in all Member States, to identify potential risks to upward social convergence.

Finally, the Commission assessed the existence of macroeconomic imbalances for the 12 Member States selected for in-depth reviews in the Alert Mechanism Report – 2024 - open a new tab.. The Commission also proposed to open excessive deficit procedures for seven Member States, based on its ‘omnibus’ report - open a new tab..

The 2024 European Semester autumn package focused on ensuring sound public finances and sustainable, inclusive growth. It launched the implementation of a new economic governance framework, with recommendations on medium-term fiscal plans and assessments of euro-area budgetary plans. It also reviewed compliance with the EU’s 3 % gross domestic product deficit rule, issuing recommendations to address excessive deficits in eight Member States and post-programme surveillance reports for five. Additionally, the package outlined economic and social policy priorities for 2025, including proposals on euro-area policies, employment and economic alerts.

The 2025 euro-area recommendation called on Member States to act both individually (including through the implementation of their recovery and resilience plans) and collectively (within the Eurogroup) to improve competitiveness, foster economic resilience and continue ensuring macroeconomic and financial stability.

The EU budget: making the EU fit for current and future challenges

Since the adoption of the European Union’s long-term budget for 2021–2027 back in 2020, the EU has faced extraordinary challenges. The consequences of Russia’s war of aggression against Ukraine, a surge in interest rates and migration pressures have all led to increased demands on the budget. In response, the European Parliament and the Council of the European Union agreed on the first-ever midterm revision of the EU’s long-term budget (known as the multiannual financial framework). As a result, additional funding of €64.6 billion is being made available to address the new challenges and to meet the EU’s legal obligations, which could no longer be accommodated within the original budgetary ceilings.

Regarding the annual budget, in November an EU budget of €192.8 billion was agreed for 2025. This will be complemented by an estimated €72 billion in disbursements under NextGenerationEU. The 2025 draft annual budget directs funds to where they can make the biggest difference: supporting the green and digital transitions, creating jobs and strengthening Europe’s strategic autonomy and global role. It will also fund critical technologies through the Strategic Technologies for Europe Platform and provide continued support for refugees, neighbouring countries and Ukraine.

A cohesive European Union

The Ninth Report on Economic, Social and Territorial Cohesion - open a new tab. showed how cohesion policy is helping to reduce territorial, social and economic disparities across the EU. It noted significant progress in newer Member States, where gross domestic product per person rose from 52 % of the EU average in 2004 to nearly 80 % in 2023.

Cohesion policy has helped the EU economy become more competitive and sustainable by supporting research and development, innovation and the green and digital transitions in all Member States. It has also improved citizens’ lives by funding the completion of essential infrastructure projects that were previously lacking, such as critical transportation and utility connections. The gradual roll-out of the Talent Booster Mechanism - open a new tab. is also helping regions with technical assistance and other activities to mitigate the effects of demographic change and brain drain.

The EU’s Single Market remains a cornerstone of economic stability and growth, enabling the free movement of goods, services, capital and people across Member States while enhancing the competitiveness of EU industries.

To ensure the Single Market remains resilient, competitive and a leader in the global green and digital transitions, the EU has collaborated with industry partners to create tailored transition pathways for each industrial ecosystem - open a new tab.. These ecosystems - open a new tab. bring together businesses, researchers, policymakers and service providers to achieve shared economic goals or address specific market needs. Transition pathways provide strategic guidance to each sector on how to embrace innovative technologies, reduce their carbon footprint and enhance digital capabilities.

In addition, for the Single Market to function effectively, rules must be properly implemented and enforced. The EU is focusing on areas that will increase investment, speed up recovery and enhance competitiveness, such as addressing late payments - open a new tab. by public authorities to businesses, particularly SMEs. Through the Single Market Enforcement Taskforce - open a new tab., the Commission and the Member States have removed barriers, for example by easing professional mobility within the EU and addressing administrative hurdles in renewable energy. The Commission is also improving transparency and existing regulatory tools to prevent new barriers from arising.

The EU also wants to ensure that SMEs are supported in all the Member States. To this end, it analysed the economic situation of SMEs across the EU and published the annual SME performance review - open a new tab. in July.

The Single Market is important not only for EU businesses, but also for its 450 million consumers. The EU introduced rules during the year to make products sold in the EU more sustainable - open a new tab.; to empower consumers for the green transition - open a new tab. and for the digital transition; and to make the repair of goods - open a new tab. an easy and attractive option. The rules will ensure better product information is available to consumers and will address greenwashing and planned obsolescence (see Chapter 4).

Finally, the Single Market continues to grow with the gradual accession of candidate countries. Enlargement creates significant opportunities for EU businesses by strengthening cross-border supply chains and lowering trade costs. Moreover, enlargement allows households in both new and existing Member States to benefit from easier access to goods and services and better affordability, leading to an enhanced standard of living. For example, the EU–Western Balkans Green Lanes initiative - PDF file, open a new tab. saves the equivalent of 20 years of waiting time annually for passengers and freight. In addition, the region’s integration into the Critical Medicines Alliance - open a new tab. has expanded the EU’s value chains, boosting growth and efficiency.

The capital markets union

The EU is also working to further develop its Single Market to allow for better cross-border capital flow. This is known as the capital markets union - open a new tab.. Freer movement of capital in the EU means lower transaction costs, a lower regulatory burden and stronger markets, in turn giving EU companies, including SMEs, access to more sources of funding and making the EU more competitive.

2024 saw the adoption of measures - open a new tab. that will strengthen the capital markets union and contribute to the EU’s objective of simplifying reporting obligations and reducing administrative burdens (see Chapter 9). The new Listing Act - open a new tab. modifies rules on prospectuses, market abuse, financial research and multiple-vote share structures. It will ease the requirements companies face both at the time of listing and after they have been listed, while preserving transparency, investor protection and market integrity. The act will also address the issue of fragmentation in national laws that limits companies’ flexibility to issue multiple-vote shares after going public, which will be particularly beneficial for innovative scale-ups.

There was also progress during the year on creating the right conditions for consolidated tape providers (CTPs) to deliver a consolidated view of trading across the EU. On 16 December, the European Securities and Markets Authority published a report on CTP technical standards - PDF file, open a new tab.. The report outlined the final technical standards for CTPs, aiming to enhance market transparency and data quality, thereby supporting the capital markets union by fostering a more integrated and efficient financial market.

In addition, the EU made progress in addressing the obstacles caused by the Member States’ different insolvency laws. Different laws lead to a fragmented capital markets union. To remove obstacles and enhance competitiveness, the Commission proposed to harmonise Member States’ substantive insolvency laws in 2022. The European Council conclusions of April 2024 created further momentum, accelerating negotiations.

Finally, to ensure the capital markets union functions effectively, the EU is increasing the attractiveness and resilience of its clearing services - open a new tab.. These are services offered by central counterparties (CCPs) that interpose themselves between counterparties to transactions in financial instruments, becoming the buyer to every seller and the seller to every buyer. By guaranteeing contractual obligations in the case of a default, CCPs are vital for preserving market stability, mitigating systemic risks and improving trust in the market.

In February 2024, a political agreement was reached on a package of measures - open a new tab. that will enable CCPs to bring new products to the EU market faster, encouraging market participants to clear and build liquidity at EU CCPs. It will also strengthen the EU’s supervisory framework for CCPs, enhancing the safety and resilience of clearing systems. The framework will reduce excessive reliance on systemic CCPs in non-EU countries by requiring all relevant market participants to hold active accounts at EU CCPs and clear a representative portion of certain systemic derivative contracts within the Single Market.

Digital finance

New rules - open a new tab. to make instant payments in euro available to all people and businesses with a bank account in the EU entered into force - open a new tab. in April, and will be applied gradually from January 2025. These rules aim to ensure that instant payments in euro are affordable, secure and processed without obstacles across the EU.

Instant payments offer fast and convenient solutions for people in everyday situations, such as receiving funds promptly (in under 10 seconds) during emergencies; paying for purchases of goods and services online and in shops; and instantly splitting shared costs in social settings. They also improve cash-flow management for public administrations and businesses, especially SMEs; enable charities and non-governmental organisations to access funds quickly; and encourage banks and other payment service providers to develop innovative financial services and products.

In addition, in 2024, the Markets in Crypto-Assets Regulation - open a new tab. entered into application, thereby putting in place uniform EU market rules for crypto-assets. This will support market integrity and innovation by regulating public offers of crypto-assets and crypto-asset intermediaries providing services to consumers, ensuring that they are better protected from associated risks.

The EU’s Technical Support Instrument is also helping 37 financial supervisory authorities from 26 Member States enhance their capacity to manage the risks of digital finance. During 2024, the EU Supervisory Digital Finance Academy provided residential and online training courses to more than 1 000 supervisors across the EU.

Combating money laundering

The anti-money laundering and countering the financing of terrorism (AML/CFT) legislative package - open a new tab. was adopted in 2024, and includes the first AML/CFT Regulation - open a new tab. and the sixth AML/CFT Directive - open a new tab.. These proposals will serve as the foundation for the work of the Authority for Anti-Money Laundering and Countering the Financing of Terrorism - open a new tab.

The new rules set EU-wide requirements for the private sector to ensure the consistent application of the rules across the Single Market. They also harmonise the tasks and powers of national supervisors and financial intelligence units to enable effective cross-border cooperation. Moreover, this framework strengthens the powers of beneficial ownership registers to ensure transparency regarding those who own or control legal entities and trusts. Finally, it harmonises rules on access to this information, allowing stakeholders with a legitimate interest, including journalists and civil society, to contribute to the fight against financial crime.

What will the new AML/CFT framework bring?

Practical examples

In November, the Parliament and the Council adopted a Regulation to Increase Transparency in Environmental, Social and Governance Rating Activities - open a new tab., addressing greenwashing concerns. This is part of a broader package - open a new tab. of measures to develop the foundations of the EU’s sustainable finance framework and to encourage private financing for transition projects and technologies.

The new rules will provide investors and financial institutions with reliable data about companies’ environmental, social and governance performance, helping them make more informed decisions about sustainable investments and risk management relating to these factors. The ratings will also provide more clarity on the activities of rating providers and whether they have taken the necessary steps to prevent and mitigate conflicts of interest.

The Parliament and the Council also agreed - open a new tab. to postpone the deadline for adopting sector-specific European Sustainability Reporting Standards from mid 2024 to mid 2026. In addition to allowing more time for the development of such standards, it will also give companies more time to focus on the implementation of the first set of horizontal standards adopted in July 2023.

In addition to adhering to reporting standards, large companies meeting certain criteria will be required to carry out due diligence on their own operations, along with those of their subsidiaries and business partners within their global activity chains, to identify and address actual and potential adverse environmental and human rights impacts. The new Directive on Corporate Sustainability Due Diligence - open a new tab. requires companies to make the necessary modifications to their overall strategies and operations, including purchasing, design and distribution practices. Non-compliance can result in administrative enforcement, including sanctions and civil liability.

A healthy banking system is essential for all EU citizens and for the stability and prosperity of the EU economy. Since the 2007–2008 financial crisis, European and international leaders have agreed on international banking standards – called the Basel III standards - open a new tab. – to ensure that banks are more resilient and to reduce the likelihood of future financial crises.

The final text of the latest banking package - open a new tab. (the Capital Requirements Regulation and the Capital Requirements Directive) entered into force on 9 July 2024, and represents a key milestone towards the faithful implementation of the Basel III standards in the EU. It reaffirms the EU’s willingness to fulfil its international commitment and to implement the prudential rules as of 1 January 2025, as previously announced. Nevertheless, the date of application of one part of the Basel III standards, the Fundamental Review of the Trading Book - open a new tab., has been postponed to 1 January 2026 to preserve the global level playing field for internationally active European banks and to align with the implementation timelines of other major jurisdictions.

To further strengthen banks, both the Parliament - open a new tab. and the Council adopted - open a new tab. their positions on and started negotiations on the reform of the bank crisis management and deposit insurance framework - open a new tab..

In addition, in December 2023 the revised Solvency II Directive was agreed upon. The new rules - open a new tab. strengthen the insurance regulatory framework by providing better incentives for the insurance and reinsurance (i.e. insurance for insurance companies) sector to invest in long-term capital. The new rules will take better account of macroeconomic risks, including those relating to climate change, and will make insurers’ financial position less sensitive to short-term market fluctuations. These changes will ensure this sector remains strong in difficult economic times and protects consumers’ interests.

At the same time, a new Insurance Recovery and Resolution Directive - open a new tab. was also agreed upon. This directive ensures financial stability and protects policyholders and taxpayers in the event of an insurer’s or a reinsurer’s failure. It requires a risk-based selection of insurers and reinsurers and their resolution authorities to formulate pre-emptive recovery plans and resolution plans, respectively, to ensure they are prepared for crises.

Reform of the customs union

The EU’s customs union reform - open a new tab., proposed in 2023, envisions a world-leading, data-driven customs system that will significantly simplify customs processes for businesses and at the same time provide authorities with the necessary tools to stop imports that pose real risks to the EU, its citizens and its economy. In 2024, progress - open a new tab. was made on the proposal to create a European Customs Authority and a centralised Data Hub, the main pillars of the three at the heart of the reform (together with e-commerce).

Complementary to this is the EU Single Window Environment for Customs - open a new tab., which is already being gradually implemented and which aims to harmonise administrative procedures between customs and other sectors, such as health and the environment. This will improve digital exchanges between governments at the EU borders and streamline the process for clearing goods.

Additionally, the Import Control System 2 - open a new tab. now requires economic operators to submit safety and security data for all modes of transport. Thanks to the system, Belgian customs authorities made their largest-ever seizures of drug precursors (chemicals used to produce illicit drugs) at Liège airport in March, working with other Member States.

Finally, the European Ports Alliance - open a new tab. was launched within the framework of the EU Roadmap to Fight Drug Trafficking and Organised Crime (see Chapter 7). It will improve the coordination between customs authorities and facilitate cooperation with other law enforcement authorities and the private sector.

Levelling the playing field in taxation

In January 2024, the EU introduced new rules setting a minimum effective tax rate of 15 % - open a new tab. for multinational companies operating within its borders. The entry into force of these rules formalises the EU’s implementation of the Pillar 2 framework, part of a historic international tax reform deal - open a new tab. reached by the Organisation for Economic Co-operation and Development in 2021. While nearly 140 jurisdictions worldwide have signed up to these rules, the EU has been a front runner in translating them into law. These rules disincentivise businesses from shifting profits to low-tax jurisdictions and curb the practice of the ‘race to the bottom’, in which countries lower corporate income tax rates to attract investment.

On 28 October, the Commission adopted a proposal - open a new tab. to amend the Directive on Administrative Cooperation in the Field of Taxation - open a new tab.. The amended directive lays down the rules and procedures for Member States’ tax authorities to cooperate closely with each other on direct taxation, thereby making it easier for companies to fulfil their filing obligations under the Pillar 2 Directive - open a new tab., which implements the abovementioned Pillar 2 framework.

Tackling tax evasion and tax fraud

The Central Electronic System of Payment Information - open a new tab. now provides Member States’ tax administrations with data that help them detect value added tax (VAT) fraud more easily, particularly from e-commerce activities. Under the new rules, payment service providers offering services in the EU must monitor the recipients of cross-border payments. They are also required to transmit information on cross-border payments to the tax administrations of Member States.

The fight against tax fraud and abuse has also been strengthened by a new piece of legislation approved in December. The Faster and Safer Tax Relief of Excess Withholding Taxes Directive - open a new tab. introduces rules that will make withholding-tax procedures in the EU more efficient and secure for investors, financial intermediaries and national tax administrations. This will speed up the process for investors to receive relief from excess withholding taxes on cross-border dividend and interest payments. It will also reduce the risk of double taxation for taxpayers and facilitate cross-border investment, strengthening the capital markets union.

In addition, the EU is embracing the digital transition to help fight fraud and support EU businesses. The VAT in the Digital Age proposal - open a new tab. – agreed on 5 November – will reduce the need for multiple VAT registrations in different Member States, expanding the existing VAT One-Stop Shop model. This proposal will also help to make use of new digital technologies, such as e-invoicing and digital reporting, to fight VAT fraud. The new rules mark the first step towards addressing the challenges raised by the development of the platform economy and helping level the playing field between online and traditional short-term accommodation and transport services. They will benefit the public finances of Member States and will lower administrative and compliance costs for EU traders.