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European leaders step-up efforts to boost EU economy
At a special meeting of the European Council on 30 August, European leaders called for speedy implementation of the 2014 European Semester country-specific recommendations endorsed on 27 June as well as of the Strategic Agenda with its strong focus on jobs, growth and competitiveness. EU leaders responded to concerns that despite significant improvements in financial market conditions and the structural efforts made by Member States, the recovery, particularly in the euro area, is weak, inflation is exceptionally low and unemployment remains unacceptably high. Leaders also supported an initiative by the Italian government to hold a conference in October at the level of Heads of State and Government on employment, especially youth employment, following those held in Berlin and Paris. The October European Council will address the economic situation and a dedicated Euro Summit will be convened. EU leaders elected Donald Tusk as President of the European Council for the period from 1 December 2014 to 31 May 2017 and appointed him as President of the Euro Summit for the same period.
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| ...job creation, based on growth, is obviously at the centre of our priorities. |
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José Manuel Barroso, President of the European Commission
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Staff lay groundwork for fifth economic reform review mission to Greece
Select staff from the European Commission, the European Central Bank, and the International Monetary Fund met with the Greek authorities in Paris during 2-4 September. Productive discussions were held on key issues for the forthcoming review of Greece’s economic programme. The full mission for the fifth review is expected to arrive in Athens in late September. The fourth review mission was completed on 19 March and its conclusions were approved by the Eurogroup on 1 April. In mid-August, the European Financial Stability Facility (EFSF ) paid out the last tranche of EUR 1 billion on an instalment of EUR 8.3 billion, after implementation of a set of milestones agreed with Greece.
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ECB cuts main rates in effort to counter too-low inflation and stimulate bank lending
With the aim to keep too-low inflation from derailing the euro area recovery, on 4 September the European Central Bank (ECB) announced cuts in all the main interest rates and a plan to purchase asset-backed securities. The ECB lowered the interest rate on the main refinancing operations of the Eurosystem by 10 basis points to 0.05%, while the interest rates on the marginal lending facility and the deposit facility were each decreased by 10 basis points to 0.30% and -0.20% respectively. All changes took effect as of 10 September. Beginning in October, the Eurosystem will also purchase asset-backed securities with underlying assets consisting of claims against the euro area non-financial private sector, as well as euro-denominated covered bonds issued by financial institutions domiciled in the euro area. The moves reflect concerns that the euro area recovery may be losing momentum as well as downside risks to the recovery. They are designed both to stimulate bank lending to the real economy and to bring inflation closer to the ECB’s target of 2%.
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August 2014: Economic Sentiment falls in euro area and EU
In August, the Economic Sentiment Indicator (ESI) fell in the euro area (by 1.5 points to 100.6) and in the EU (by 1.2 points to 104.6). After a broadly flat development over the last five months, August’s decrease shifted the euro area headline indicator back to its December 2013 level. Worsened sentiment resulted from deterioration in retail trade, consumer, industry, and, to a lesser extent, services confidence. Amongst the largest euro area economies, sentiment dropped significantly in Italy (-4.1), and in Germany (-1.9). Milder contractions were booked in France (-0.6) and the Netherlands (-0.8), while sentiment remained flat in Spain. The relatively more moderate decrease of the headline indicator in the two largest non-euro area EU economies, the UK (-1.1) and Poland (-1.0), resulted in a less severe contraction for the EU ESI. Vice-President Jyrki Katainen called the fall in economic confidence “a source of concern,” because “without confidence, we will not see the pick-up in investment we need for a more robust recovery in growth and employment.” He said that the composition of public expenditure should be better geared towards promoting growth.
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Second quarter GDP stable in the euro area and up by 0.2% in the EU
Seasonally adjusted GDP remained stable in the euro area and rose by 0.2% in the EU during the second quarter of 2014, compared with the previous quarter, according to second estimates published on 5 September by Eurostat, the statistical office of the EU. In the first quarter of 2014, GDP grew by 0.2% in the euro area and by 0.3% in the EU. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 0.7% in the euro area and by 1.2% in the EU in the second quarter of 2014, after increasing by 1.0% and 1.4% respectively in the previous quarter. Among Member States for which data are available for the second quarter of 2014, Malta (+1.3%), Latvia (+1.0%), Lithuania, Hungary and the United Kingdom (all +0.8%) recorded the highest growth compared with the previous quarter. Romania (-1.0%), Denmark and Cyprus (both -0.3%), Germany and Italy (both -0.2%) registered decreases. Household final consumption expenditure had a positive impact on GDP growth in both the euro area and the EU28 while gross fixed capital formation had a negative impact on GDP growth in the euro area and had no influence in the EU. The contribution of the external balance to GDP growth was positive in the euro area and had no influence in the EU.
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Juncker to revamp College; proposes a strong and experienced team standing for change
On 10 September, Commission President-elect Jean-Claude Juncker unveiled his team and the shape of the next European Commission. The new Commission will be streamlined to focus on tackling the big political challenges Europe is facing. The new College will have seven Vice-Presidents, each steering and coordinating the work of a number of Commissioners as project teams in compositions that may change according to need. A new Economic and Financial Affairs, Taxation and Customs portfolio (under Pierre Moscovici), for example, will ensure that taxation and customs union policies become part and parcel of a deep and genuine Economic and Monetary Union and contribute to the smooth functioning of the EU’s overall economic governance framework . Juncker’s proposed team has a great deal of political experience – it includes several former Prime Ministers, Commissioners and Members of the European Parliament – and with nine women it maintains gender balance.
Twitter, Facebook, Linkedin, GooglePlus
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At Ambrosetti Forum, Barroso argues for both fiscal consolidation and growth
President Barroso and other members of the Commission, including Vice President Jyrki Katainen, participated in the 40th edition of the Ambrosetti Forum on 6 September in Villa d'Este, Italy. The forum is organised every year by the renowned think tank “The European House – Ambrosetti”. This year’s theme was “Intelligence on the World, Europe and Italy”. The workshop offers Italian and international decision-makers the opportunity to participate in a high-level examination of geopolitical, economic, technological and social scenarios and their implications for business. In remarks during his key note speech, entitled “The Future of Europe: Delivering Reform”, President Barroso emphasised that “we need both, stability and growth. And we need structural reforms to make our economies more competitive.” Barroso pointed out that the Stability and Growth Pact has built-in flexibility that is already being used, and cautioned that “it is a mistake to put on one side those who are for growth and the other side those who are for fiscal consolidation.”
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Dijsselbloem at European Parliament calls for shifting taxation away from labour and for more flexibility to combat crisis
Appearing before the Economic Affairs Committee of the European Parliament on 4 September, Jeroen Dijsselbloem, President of the Eurogroup, said that fiscal measures, such as shifting taxation away from labour, should play a bigger role in combating the crisis and that flexibility in implementing the Stability and Growth Pact is also needed. Dijsselbloem said that “labour tax is too high in many countries and we have to discuss how to shift the burden.” Moreover, he noted that unlike reforms of labour or housing markets, tax reforms can be put into effect quickly. On the issue of flexibility, Dijsselbloem said that it “should be used without damaging credibility” and that “it does not mean that ‘anything goes’.” He advocated applying flexibility in combination with structural reforms and noted that this will be debated in October and November, when EU Member States’ national draft budgets are discussed with the Commission. President Dijsselbloem added that the banking union is crucial for investments, but that some impetus from the public side is needed, too.
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Is unemployment structural or cyclical? Main features of job matching in the EU after the crisis. European Economy. Economic Papers 527.
This paper sheds light on developments in labour market matching in the EU after the crisis. First, it analyses the main features of the Beveridge curve and frictional unemployment (time between jobs) in EU countries, and attempts to isolate temporary changes in matching from structural shifts. Second, it assesses whether job mismatches became more serious across skills, economic sectors, or geographical locations as a result of the crisis, and explores the role of the public policy. The paper concludes that labour market matching deteriorated after the crisis, but with a great deal of heterogeneity across EU countries. Matching deteriorated most in countries more severely affected by current account reversals and the debt crisis. As for causes, longer periods of unemployment appeared to be a significant driver of matching efficiency, while skill and sector mismatches also played a role. Active labour market policies were associated with a higher matching efficiency while in some instances generous unemployment benefits reduced matching efficiency.
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| Directorate-General for Economic and Financial Affairs |
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