12.01.2011 - The European Commission has published the first Annual Growth Survey (AGS) under the new European Semester
The adoption by the European Commission of the Annual Growth Survey (AGS) will mark the beginning of the first cycle of coordination of the Member States' macro-economic, budgetary and structural reform policies, known as the "European semester". This is a real step forward for European economic governance. From now on, every year the Commission will present its "Growth Survey" – an evaluation of the economic situation and of the main challenges the EU must address, and its recommendations to the Member States.
The crisis could have a lasting effect on potential growth. Medium term potential growth for Europe is projected to remain low and estimated at around 1.5% up to 2020 if no structural action is taken namely to resolve the labour productivity gap with our main competitors. Given its cyclical nature, recovery alone cannot provide the impetus for leading Europe back to the pre-crisis economic situation and absorb the deficit accumulated. To avoid stagnation, unsustainable debt trends, accumulated imbalances and ensure its competitiveness, Europe needs to accelerate the consolidation of its public finances, the reform of its financial sector and to frontload structural reforms now.
The AGS brings together the different actions which are essential to strengthen the recovery in the short-term, to keep pace with our main competitors and prepare the EU to move towards its Europe 2020 objectives. Given the urgency, the Commission has chosen to present 10 priority actions, as part of an integrated approach to recovery encompassing three main areas:
A more detailed analysis underpinning the Commission's assessment is set out in 3 reports that accompany this Communication and include an assessment of the initial setting up of the Europe 2020 strategy at Member State level. The text below summarises the macro annex.
The macro-economic report aims at pinpointing measures that have the highest potential of delivering positive macro-economic effects and that the Member States should consider in their economic policy strategies they set up in 2011.
While the EU remains a wealthy area, its economic growth in the past decade has been weak by international standards, pointing to structural weaknesses in the EU before the crisis. In the good years preceding the crisis, several EU Member States deviated from the basic principles of prudent fiscal policy making, and macroeconomic imbalances continued to build up. The European economy is slowly emerging from the deepest recession in decades, which wiped out on average four years of growth. The crisis has taken a heavy toll on Europe's societies with a sharp rise in unemployment. The crisis had a dramatic impact on public finances, and led to a sharp drop in investment. Although all the Member States have been hit by the crisis, the situation differs significantly across the Union both in terms of the public finances situation and external competitiveness. This calls for tailor-made policies.
Fiscal consolidation remains a key priority for all the Member States. An annual improvement in the structural budget balance of 0.5% of GDP - the conventional benchmark of the Stability and Growth Pact – would clearly be insufficient in many EU Member States to bring the debt to GDP ratio close to the Treaty-based threshold of 60% in the foreseeable future. Fiscal policy makers in the EU face a double challenge: putting fiscal policy back on a sustainable path, while protecting or supporting economic growth and employment. Successful fiscal consolidation will rest on five interrelated elements: the composition of fiscal adjustment, the credibility of the policy strategy, the institutional context, complementary policy initiatives and the burden sharing across society.
Balance sheet repair in the banking sector is essential to improve cost efficiency, restore competitiveness, return to normal lending, which will pave the way to recovery. A swift exit from sizable public support to banks will remove possible distortions to competition in the financial industry. Confidence in the banking sector is a prerequisite for maintaining financial stability. The crisis exposed a gap in the EU regulatory framework for the banking sector and strengthened the case for action at EU level. A permanent "European Stability Mechanism" will be established by euro area Member States to safeguard the financial stability of the euro area as whole. Basel III rules imposing tougher capital requirements on banks will enhance macro-financial stability.
Structural reforms can serve two goals: enhancing growth, and preventing or correcting imbalances. In the absence of resolute policies, potential growth is likely to remain weak, at around 1½%, in the coming decade, compared with 1.8% in 2001-2010. Urgent actions are required both at national and EU level. Progress with structural reform can generate significant gains in terms of increasing growth and creating jobs. Correcting macro-economic imbalances is a key condition for growth and is particularly relevant for the euro area. For Member States with large current account deficits, weak competitiveness and weak adjustment capacity, large price and cost adjustments will be needed, alongside measures supporting the reallocation of labour across firms and sectors. In Member States with large current account surpluses, the sources of persistently weak domestic demand need to be identified.
Extracts from the joint press conference by José Manuel Barroso, EC President, Olli Rehn, European Commissioner for Economic and Monetary Affairs and László Andor, European Commissioner for Employment, Social Affairs and Inclusion.