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European Council endorses country-specific recommendations to conclude the 2014 European Semester
At their European Council meeting of 26-27 June, EU leaders generally endorsed the 2014 country-specific recommendations (CSRs) to conclude this year's European Semester. Based on the Commission CSRs of 2 June, the ECOFIN Council of finance ministers on 20 June had approved the final draft recommendations. The endorsement was made against the background of recent signs of recovery, although the recovery remains fragile and uneven. In view of still unacceptably high levels of unemployment in a number of EU countries, EU leaders underscored that continued efforts were necessary to tackle unemployment and strengthen Europe's capacity to grow and create more jobs. They called on Member States to translate the recommendations based on the principles of national ownership and social dialogue in their forthcoming decisions on budgets, structural reforms and employment and social policies. The Council and the Commission will closely monitor implementation of the CSRs and take action as required. EU leaders also welcomed the abrogation of excessive deficit procedures for six countries that was adopted as the Commission had recommended on 2 June.
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| …What we need is to keep […] the agenda for growth and jobs, but with stronger implementation and stronger ownership at all levels of the European Union, from the European institutions to our countries. |
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Manuel Barroso, President of the European Commission
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European Council endorses Commission proposal for Lithuania to adopt the euro in 2015
European leaders have endorsed the Commission proposal that Lithuania adopt the euro on 1 January 2015. The agreement was reached at the European Council meeting on 26-27 June. On 20 June, the Eurogroup had concluded that Lithuania fulfils the convergence criteria and other requirements to join the euro area based on the analysis by the Commission and European Central Bank. Vice President Olli Rehn called the decision “another important step towards having a ‘Baltic full house’ in the euro area,” and said it would be “very good news for Lithuanian citizens and for the euro area as a whole.” Pending the opinion of the European Parliament in mid-July, the Council is expected to formally approve Lithuania’s accession at its meeting on 23 July.
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Commission-IMF staff visits Romania and observes economy largely on track
Teams from the International Monetary Fund (IMF) and the European Commission visited Bucharest during 2-12 June 2014 to conduct discussions for the third review under the IMF Stand-By Arrangement and for the first review of Romania’s precautionary balance of payments programme with the EU. Romania’s economy has continued to recover and is now expected to grow by 2.8% this year. Fiscal imbalances have been reduced and the current account deficit has remained low. The teams also had constructive discussions with the Romanian authorities on how to ensure further progress and reached agreement on important policies in this regard. Some issues remain outstanding, however, so the Commission and the Romanian authorities will continue the discussions from their respective headquarters.
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Eurogroup reaches agreement on ESM direct recapitalisation instrument
On 10 June 2014, the Eurogroup reached a political agreement on the European Stability Mechanism (ESM) direct recapitalisation instrument, building on the main features agreed on 20 June 2013. Discussions were lengthy and complex, as the instrument had to fit within an evolving banking union environment in which the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) were also being developed. The instrument may be activated in case a bank fails to attract sufficient capital from private sources and if the ESM Member concerned is itself unable to recapitalise the bank, including through the ESM’s instrument for indirect recapitalisation. Until the end of 2015, a bail-in of 8% of all liabilities will be required, while from 2016 the bail-in rules of the Bank Recovery and Resolution Directive will be applied. In all cases, recapitalisation will be conducted in accordance with EU State aid rules. The instrument, which has a maximum capacity of EUR 60 billion, should be officially added to the ESM's toolkit after conclusion of the relevant national procedures and its formal adoption by the ESM Board of Governors, in time for the start of SSM supervision in November 2014.
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EU disburses EUR 500 million of Macro-Financial Assistance to Ukraine
On 17 June, the European Commission, on behalf of the EU, disbursed EUR 500 million to Ukraine. A week before, the Commission had raised the amount on capital markets to fund this first loan tranche for Ukraine under the new Macro-Financial Assistance (MFA II) programme. The funding was by increasing the EU 10-year EUR 2.6 billion bond issued in April 2014 to EUR 3.2 billion, after initially tapping into the bond issue to raise EUR 100 million in May. MFA II is supporting Ukraine with loans of up to EUR 1 billion and is implemented in parallel with the already approved programme of EUR 610 million (MFA I), for a total combined amount of up to EUR 1.61 billion. A first disbursement of EUR 100 million under MFA I was made to Ukraine on 20 May. The EU's MFA complements the resources made available by the International Monetary Fund and other donors in the context of the stabilisation and reform programme recently launched by the Ukrainian authorities.
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2015 EU draft budget to help Europe’s economic growth despite financial constraints
The EU’s draft budget for 2015, which was adopted by the Commission on 11 June, is designed to help Europe recover from the crisis despite financial constraints. The budget comprises commitments of EUR 145.6 billion and payments of EUR 142.1 billion. The bulk of the commitments are for future projects that make Europe stronger economically whereas some 40% of the payments cover EU funded projects from the 2007-2013 financial period. The lion’s share of payment appropriations goes to areas that boost Europe’s economic growth and jobs (+29.5% compared to 2014) such as research (Horizon 2020), trans-European networks for energy, transport and ICT (Connecting Europe Facility) or the Youth Employment Initiative. The Commission is also proposing a further 1% reduction in its staff numbers, the third such cut in three years. Its functioning cost has remained stable in real terms. The Council is expected to adopt its position on the draft budget in September, and the European Parliament will follow with its position in late October. If their positions diverge, the Council and the Parliament would have a 21-day conciliation period during which to reach a compromise agreement starting from 28 October.
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Commission underlines importance of innovation reforms to sustain economic recovery, takes stock of Innovation Union
The European Commission published a new Communication on “Research and Innovation as sources of renewed growth” on 10 June. It is underpinned by the 2014 State of the Innovation Union report that details the steps taken since 2010 to implement the Innovation Union flagship initiative of the Europe 2020 growth strategy. The Communication and the report highlight the importance of research and innovation (R&I) investments and reforms for economic recovery in the EU, and make proposals to help Member States maximise the impact of their budgets at a time when many countries still face spending constraints. Increasing overall R&I investment is a proven driver of growth, while improving the efficiency and quality of public R&I spending is also critical if Europe is to maintain or achieve a leading position in many fields of knowledge and key technologies. The Communication also emphasises the importance of increasing R&I spending to 3% of GDP, in order to keep up with international competitors.
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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. To provide you with the most relevant information in the optimal format, we would like to kindly ask you 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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Eurostat: Consumer price levels varied widely across the EU in 2013, from a high of 140% of the average to a low of 48%
In 2013, price levels for consumer goods and services varied widely across Member States, according to an article published on 19 June by Eurostat, the statistical office of the European Union. Denmark had the highest price level (140% of the EU average), followed by Sweden (130%), Luxembourg and Finland (both 123%). Price levels of 10% to 20% above the EU average were found in Ireland (118%), the United Kingdom (114%) and the Netherlands (110%), while Belgium and France (both 109%), Austria (107%), Italy (103%) and Germany (102%) had levels less than 10% above the average. Spain (95%) was just below the EU28 average, while Greece (89%), Cyprus and Portugal (both 86%), Slovenia (83%), Estonia and Malta (both 80%) were between 10% and 20% below. Price levels at around 30% to 35% below the average were observed in the Czech Republic, Latvia and Slovakia (all 71%), Croatia (68%) and Lithuania (65%), and levels at around 40% below in Hungary (60%), Poland and Romania (both 57%). The lowest price level was found in Bulgaria (48%).
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Euro exhibition opens in Gdańsk
Building on its success over the last year and a half, the European Commission and the National Bank of Poland have decided to prolong the travelling euro exhibition project for one more year. On 11 June, the exhibition was opened in Gdańsk by Małgorzata Zaleska, Member of the Management Board of the National Bank of Poland (NBP) and Rafał Rudnicki, Head of the Information and Social Communication Unit at the European Commission Representation in Poland. The exhibition takes visitors on the road to the euro around two exhibition areas. After presenting EU countries and the main historic steps that led to the adoption of the euro, it focuses on the Economic and Monetary Union and also addresses topical issues, such as the EU response to the sovereign debt crisis and the new EU economic governance framework. The exhibition will stay in Gdańsk until 13 July 2014 and is scheduled to then visit two more cities in 2014: Poznań and Wrocław.
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International capital flows and the boom-bust cycle in Spain. European Economy. Economic Papers 519.
This paper analyses the joint dynamics of foreign capital flows and real activity during the recent boom-bust cycle of the Spanish economy, using a three-country New Keynesian model with credit-constrained households and firms, a construction sector and a government. The model uses data from the first quarter of 1995 through the second quarter of 2013 for Spain, the rest of the euro area and the rest of the world. The analysis shows that falling risk premia on Spanish housing and non-residential capital, a loosening of collateral constraints for Spanish households and firms, and the fall in the interest rate spread between Spain and the rest of the euro area fuelled the Spanish output boom and the persistent rise in foreign capital flows to Spain before the global financial crisis. During and after the global financial crisis, falling house prices, and a tightening of collateral constraints for Spanish borrowers contributed to a sharp reduction in capital inflows, and to the persistent slump in Spanish real activity. The credit crunch was especially pronounced for Spanish households.
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| Directorate-General for Economic and Financial Affairs |
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