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Commission adopts Country-Specific Recommendations for 26 Member States to spur sustainable growth and employment
The European Commission has adopted a series of economic policy recommendations to 26 individual Member States to strengthen the recovery that began a year ago. The recommendations adopted on 2 June are based on detailed analyses of each country's situation and provide guidance on how to boost growth, increase competitiveness and create jobs in 2014-2015. They are the culmination of the fourth European Semester of economic policy coordination. This year, the emphasis has shifted from addressing the urgent problems caused by the crisis to strengthening the conditions for sustainable growth and employment in a post-crisis economy. The Commission noted the need to tackle high unemployment, inequality and poverty; to shift to jobs-friendlier taxation; to boost private investment; to make economies more competitive by implementing structural reforms in key areas; and to bring down levels of debt. The country-specific recommendations will be discussed by EU leaders and ministers in June and formally adopted by the EU’s Council of Finance Ministers on 8 July. It will then be up to Member States to implement the recommendations.
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| …the European economy has come a long way since this time last year, when it was just beginning to emerge from a prolonged recession. Today, the recovery is gradually strengthening, becoming broader based and spreading across countries. Nonetheless, major challenges remain. |
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Olli Rehn, Vice-President for Economic and Monetary Affairs and the Euro
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Commission assesses eight EU countries’ readiness to join the euro area; proposes that Lithuania join in 2015
The European Commission released its 2014 Convergence Report on 4 June. The report assesses eight Member States’ readiness to join the single currency. While the eight countries have made uneven progress on the road to euro adoption, Lithuania stands out as it now fulfils the convergence criteria. The Commission has therefore proposed that the EU Council of Ministers decide that Lithuania can adopt the euro as of 1 January 2015. The Council will take the final decision on the matter in July, after EU Heads of State or Government have discussed the subject at the 26-27 June European Council, and after the European Parliament has given its opinion. The seven other Member States that were assessed by the Commission were Bulgaria, the Czech Republic, Croatia, Hungary, Poland, Romania and Sweden. None currently fulfil all of the criteria to adopt the euro, and their situation will therefore be reassessed in two years’ time.
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Commission recommends closure of Excessive Deficit Procedure for six countries
The European Commission has recommended that the EU Council of Ministers close the Excessive Deficit Procedure (EDP) for six countries: Austria, Belgium, Czech Republic, Denmark, the Netherlands and Slovakia. In addition, the Commission has concluded that two countries, Poland and Croatia, have taken effective action in response to the Council recommendations to those countries under the EDP. Countries placed in EDP are given a deadline of six months (or three months for a serious breach) to take effective action to comply with a recommendation. In a separate report, the Commission concluded that Finland's planned and forecast breach of the EU's 60% of GDP public debt limit does not merit the launch of an EDP since the excess is due to the country’s contributions to solidarity operations for euro area countries. The EU’s Council of Finance Ministers will discuss the Commission's recommendations at its meeting on 20 June in Luxembourg. If the Council follows the Commission's recommendations, the overall number of countries in EDP will drop from 17 to 11.
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ECB lowers key rates to support growth and lending to the real economy; intensifies preparations to possibly purchase securities
The Governing Council of the European Central Bank (ECB) has decided to reduce the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.15%, and the interest rate on the marginal lending facility by 35 basis points to 0.40%. In addition, the ECB will reduce the interest rate on the deposit facility by 10 basis points to -0.10% in order to further encourage banks to lend to the real economy. The changes announced on 5 June will take effect on 11 June. Aside from reducing key interest rates, the ECB will also intensify preparatory work related to possible outright purchase of asset-backed securities. The package of measures is designed to contribute to a return of inflation to levels closer to 2%, thereby pre-empting any risk of deflation. In order to support bank lending to households and non-financial corporations, excluding loans for house purchases, the ECB will also conduct a series of targeted longer-term refinancing operations, initially amounting to as much as EUR 400 billion.
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May 2014: Economic Sentiment rises in the euro area, remains broadly stable in the EU
In May the Economic Sentiment Indicator (ESI) rose in the euro area (by 0.7 points to 102.7), following an almost equal decrease in April. In the EU, the headline indicator remained broadly stable (+0.2 points at 106.5). In the euro area, improved sentiment was driven by higher confidence among consumers as well as industry and construction managers. Confidence in services and retail trade remained broadly unchanged compared to April. Amongst the five largest euro area economies, the ESI increased in Spain (+0.4), Italy (+0.5), Germany (+0.7) and, particularly, the Netherlands (+1.3). Only France saw sentiment slightly declining (-0.4). The broadly stable ESI in the EU reflected slipping sentiment in the largest non-euro area EU economy (UK, -1.0), while sentiment in Poland was flat (±0.0). In line with the euro area results, confidence in the EU improved among consumers, in financial services and in retail trade. Developments in other business sectors, however, were worse than in the euro area.
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Eurobarometer: Overall majority in recently acceded EU countries favours introducing the euro; support differs across countries
The latest Eurobarometer survey (EB 400) carried out in April on the introduction of the euro in the more recently acceded EU countries reverses the trend of previous surveys. Now an overall majority of 52% is in favour of introducing the euro while 45% are against introduction. However, support differs greatly across the seven countries, ranging from a high of 74% in Romania to a low of 16% in the Czech Republic. In Lithuania, support stood at 46% (five percentage points more than in the previous poll) while 48% (seven points less) of those polled were against introducing the euro. Across the seven countries, half of the respondents expect negative consequences for their own country. Nevertheless, this marks a slight improvement in perception compared to the previous poll. Moreover, a majority of 52% (six points more) now sees positive consequences for the current euro area countries. In Lithuania, 47% (8 percentage points less than before) expect negative consequences from introducing the euro, of whom 75% expect prices to rise.
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ECFIN e-news reader survey: What do you think of it?
The EU economic and financial landscape – and especially economic governance – has evolved dramatically since the first issue of ECFIN e-news was published in December 2009. With publication of this 100th issue, we would like to kindly ask you once again to contribute your views and suggestions. What do you like about the newsletter? What could be improved? Thank you for sharing your thoughts by spending just a few minutes to answer the online questionnaire. We appreciate your feedback.
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Commission adopts “Partnership Agreement” with Greece on using EU Structural and Investment Funds for growth and jobs
The European Commission has adopted a “Partnership Agreement” with Greece setting down the strategy for the optimal use of European Structural and Investment Funds. The strategy adopted on 23 May sets out how EUR 15.5 billion in total Cohesion Policy funding and EUR 4.2 billion for rural development will be invested in the country’s real economy during the period 2014-2020. Greece will be assisted in administering the funds by the Task Force for Greece, an entity established by Commission President Barroso on 20 July 2011, after consultations with the Greek Prime Minister, to provide technical assistance to Greece. The Commission also has adopted a similar “Partnership Agreement” with Poland that paves the way for investing EUR 77.6 billion in total Cohesion Policy funding over 2014-2020, which is the biggest national allocation among the EU’s 28 Member States. Poland also receives EUR 8.6 billion for Rural Development. Partnership Agreements are the umbrella for all the different European Structural and Investment funds: the European Regional Development Fund, the Cohesion Fund, the European Social Fund, the Rural Development Fund and the European Maritime and Fisheries Fund.
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G7 Leaders discuss Ukraine and other issues in Brussels
Presidents Barroso and Van Rompuy on behalf of the European Union hosted a meeting of G7 Leaders in Brussels on 4-5 June. Due to the Russian Federation's violation of Ukraine's sovereignty and territorial integrity, G7 partners had decided to cancel their participation in the originally planned G8 Summit in Sochi, Russia and instead meet in Brussels in the G7 format. As described in their Summit Declaration , leaders discussed the continuing work to support Ukraine's economic and political reforms. They also discussed the global economy, as well as measures to improve energy security, and address climate change and development. Discussions on the global economy took place in the context of a positive global outlook – although with weaknesses in some emerging economies – and an improved economic situation in Europe when compared with previous summits. Leaders also addressed trade issues including the on-going negotiations between G7 members.
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Fragmentation of wholesale funding markets – an empirical approach to measure country-specific risk premia in banks' bond spreads. Economic Briefs 32/2014.
This paper presents empirical evidence that euro area wholesale banking markets have become fragmented along national boundaries. The estimates identify a significant premium in the range of 60-170 basis points on issued debt that banks have paid to investors if the banks are located in Spain, Ireland or Italy. Portuguese and Greek banks paid a premium of up to 170 and 200 basis points respectively due to the impact of sovereign risk on market fragmentation. The premium for banks in other core euro area countries is around 30 to 60 basis points. The coefficients should be read as an average risk premium over the period mid-2010 to January 2014 that euro area banks have to pay above what banks located in Germany pay. For the pre-crisis period 2003-2010, coefficients were generally insignificant or much lower.
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| Directorate-General for Economic and Financial Affairs |
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