This report was requested by the Heads of State or Government on 28-29 June 2012 to monitor the impact of budget constraints on growth enhancing public expenditure and on public investments.

The report (i) reviews trends in the composition of public expenditure in the EU amid the recent  economic and financial crisis and the subsequent fiscal adjustment, (ii) discusses different notions of expenditure efficiency, with a special focus on health care and on public administration reform, (iii) reviews the scope for possible actions within the EU budgetary frameworks to prioritise growth-friendly and efficient expenditures and (iv) spells out a possible way forward in the context of the European Semester.

The evidence shown in the report suggests among others that Member States should do more to prioritise growth-friendly spending items, such as education and training, R&D, selected investment projects etc., within national policy frameworks. Public investment projects in particular should be carefully assessed based on their likely contribution to potential growth.