Economic policy challenges 2013
Directorate General for Economic and Financial Affairs European Commission
I. Recent economic developments and outlook
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4
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Breaking the negative feedback loop
FINANCIAL STABILITY
SOVEREIGN DEBT
ECONOMIC GROWTH
Breakthe negativefeedback loop
Structural reforms
Fiscal discipline
Bank funding
Bankrecaps
Firewalls
Differentiated fiscal consolidation & quality of public finances
Public sector deleveragingGeneral government consolidated gross debt, % of GDP
Public finances set to improve further
General government budget balance, euro
area
General government debt,
euro area
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65
70
75
80
85
90
95
100
05 06 07 08 09 10 11 12 13 14
% of GDP
-7
-6
-5
-4
-3
-2
-1
0
1
2
05 06 07 08 09 10 11 12 13 14
General goverment balance
General government balance in structural terms
forecast
% of GDP
Financial fragmentation in the euro area
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Interest rates on loans to enterprises (new businesses, maturity up to 1 year)
Intra-EA adjustment is taking place
Current-account position, % of GDP
Facing the economic challenges in the EU…
1. Continue growth-friendly fiscal consolidation•- differentiated pace•- growth-friendly mix of revenue and expenditure
2. Continue financial repair
3. Implement structural reforms for growth and adjustment
II. Economic policy priorities in the EU in 2013
Annual Growth Survey 2013: 5 priorities
• 1. Pursuing differentiated, growth-friendly fiscal consolidation
• 2. Restoring normal lending to the economy
• 3. Promoting growth and competitiveness for today and tomorrow
• 4. Tackling unemployment and the social consequences of the crisis
• 5. Modernising public administration
1. Differentiated, growth-friendly fiscal consolidation
• Main components:• 1. Differentiated pace of consolidation in line with
the SGP• 2. Growth-friendly composition of consolidation
• Additionally:• 3. Long-term sustainability• 4. Fiscal governance and budgetary institutions
2. Restoring normal lending to the economy
• - Restoring macro-financial stability
• - Continuing financial repair
• - Promoting new sources of funding
• - Using EU financial instruments
3. Promoting growth and competitiveness
• Improving framework conditions for growth and facilitate adjustment by:
• - driving innovation• - rising the performance of education systems• - improving business environment• - tapping the potential of the green economy• - deepening the Single Market, in particular in
services sectors• - improving the performance of network industries
4. Tackling unemployment and the social consequences of the crisis
Precarious situation on the labour market in some EU countries: economic, social and political costs.
Priorities- Laying the grounds for a job-rich recovery- Improving employability- Promote social inclusion and prevent poverty
5. Modernising public administration
Modern, efficient and effective public administration:
- Improving financial management
- Simplifying the regulatory framework
- Digitalisation of public administration,
- Improving the quality, independence and efficiency of judicial systems
- Making better use of EU structural funds
III. Directorate General of Economic and Financial Affaires – work streams in 2013
ECFIN policy files 2013
1. Future of EMU – more integrated EMU
2. European semester – economic policy coordination
3. Implementation of the Stability and Growth Pact
4. Macro-economic Imbalances Procedure
5. Financial assistance to Member States (EL, PT, IE, ES, CY, RO)
6. Macro-financial assistance (Kyrgyz Rep., Georgia, Egypt, Jordan)
7. International meetings – G20 and IMF
1. Future of EMU
- Banking union – financial sector regulation
- Fiscal union – establishing fiscal capacity
- Economic union – coordinated policy reforms
- Political union – democratic legitimaticy and accountability
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2. Integrated country surveillance: European semester
SGP: fiscal policy
Competitiveness and imbalances
• Budgetary balances
• Public debt
• Long-term sustainability of public finances
• Budgetary rules and institutions
• Elements of quality of public finance
Structural reforms to raise growth
potential
• Wages and price competitiveness
• External imbalances
• Internal imbalances (housing, credit)
• Labour market reforms
• Product market reforms
• Reforms of social protection systems
Competitiveness and imbalances
• Wages and price competitiveness
• External imbalances
• Internal imbalances (housing, credit)
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3. Stability and Growth Pact
• A rule-based framework for the coordination of national fiscal policies in the economic and monetary union (EMU)
• Preventive arm:• Member States must submit annual stability or convergence
programmes, showing how they intend to achieve or safeguard sound fiscal positions in the medium term
• Commission assesses these programmes and the Council gives its Opinion on them (integrated in country-specific recommendations)
• Corrective arm: Excessice Deficit Procedure
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4. Macro-economic Imbalances Procedure
• Procedure for preventing and correcting macro-economic imbalances in the Member States
• Commission’s Annual Alert Mechanism Report (AMR) – economic reading of scoreboard
• Commission In-depth reviews (IDRs) of selected Member States to assess whether there is any imbalance and if yes, then how serious is the imbalance
• Council recommendations to Member States where imbalances exist
Macro-economic Imbalances Procedure: scoreboard indicators
• External imbalances and competitiveness:
• current account balance (as a % of GDP, 3-year average)• Net International Investment Position (as a % of GDP)• Real Effective Exchange Rate (% change of 3 years, HICP deflators)• export market shares (% change in 5 years) • nominal unit labour cost (% change in 3 years)
• Internal imbalances
• deflated house prices (y-o-y % change)• private sector credit flow (as % of GDP)• Unemployment rate (3-year average)• private sector debt (as % of GDP)• General government debt (as % of GDP)• Total Financial Sector Liabilities (y-o-y % change)
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Excessive Imbalances Procedure (EIP)• - Opened in case the IDR identifies an excessive imbalance for a
Member State
• - Member State concerned will have to submit a corrective action plan with a clear roadmap and deadlines for implementing corrective action
• - Enforcement for euro area Member States (reversed qualified majority voting in the Council): • An interest-bearing deposit can be imposed after one failure to comply with
the recommended corrective action • After a second compliance failure, this interest-bearing deposit can be
converted into a fine (up to 0.1% of GDP) • Sanctions can also be imposed for failing twice to submit a sufficient
corrective action plan
IV. Legislative framework of economic policy surveillance
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Economic policy surveillance: legislative framework
• - Treaty: Articles 121 and 136
• - Six-pack legislation
• - Two-pack regulations (to be adopted)
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• - Treaty on stability, coordination and governance (intergovermental)
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Treaty article 121
• - Member States coordinate economic policies within the Council
• - Council adopts broad guidelines of the economic policies of the Member States and the EU
• - Council monitors economic developments in each Member State
• - Commission may address warnings and Council may address recommendations to Member States
• - Parliament is kept informed
• - Parliament and Council may adopt detailed rules for multilateral surveillance procedure
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Treary article 136
• Council adopts measures specific to those Member States whose currency is the euro:
(a) to strengthen the coordination and surveillance of their budgetary discipline
(b) to set out economic policy guidelines for them
• Only euro area Member States can vote on these measures in the Council
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Six-pack legislation(entered into force on 13 December 2011)
• Regulation (EU) No 1173/2011 on the effective enforcement of budgetary surveillance in the euro area
• Regulation (EU) No 1174/2011 on enforcement measures to correct excessive macroeconomic imbalances in the euro area
• Regulation (EU) No 1175/2011 amending Council Regulation (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies
• Regulation (EU) No 1176/2011 on the prevention and correction of macroeconomic imbalances
• Council Regulation (EU) No 1177/2011 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure
• Council Directive 2011/85/EU on requirements for budgetary frameworks of the Member States
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Two-pack regulations(proposals; to be adopted in 2013)
• Proposal for a Regulation on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit of the Member States in the euro area - COM(2011)821
• Proposal for a Regulation on the strengthening of economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability in the euro area - COM(2011)819
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Treaty on stability, coordination and governance (entered into force on 1 January 2013)
• - Intergovernmental agreement (not EU law)
• - Signed by 25 MS (all but UK and CZ)
• -Ratified by 12 euro area MS and 4 non-euro area MS: AT, CY, EE, FI, FR,
DE, EL, IE, IT, PT, SI and ES; DK, LV, LT and RO
• - For euro area MS, others can opt-in
• - Foresees strict fiscal rules to be integrated in national legislation,
preferably in constitutions, to be backed with the possibility of financial
sanctions (fiscal compact)
• - Implies ex-ante coordination of economic policies, and presenting
economic partnership programmes on structural reform plans by Member
States subject to the EDP
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Integrated guidelines
• Council recommendation of 13 July 2010 on broad guidelines for the economic policies of the Member States and of the Union (2010/410/EU) – public finances– macro-economic imbalances– R&D&I– resource efficiency– business and consumer environment
• Council decision of 26 April 2012 on guidelines for the employment policies of the Member States (2012/238/EU; 2010/707/EU) – labour market participation and structural unemployment – matching skills with labour market needs – education and training
– social inclusion and combating poverty
Balance of Payments regulation
• Commission proposal for a Council regulation establishing a facility for providing financial assistance for Member States whose currency is not the euro - COM(2012) 336 – 22 June 2012
• Aligning the framework of financial assistance to non-euro area Member States with the framework of assistance to euro-area Member States (the two-pack regulations)
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Thank you for your attention
Directorate General for Economic and Financial Affairs European Commission