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European leaders support incoming Commission’s investment plans; highlight need to implement agreed initiatives for jobs, growth and competitiveness
At the European Council and Euro Area Summit meetings on 23-24 October, EU leaders noted the importance of investment and supported the incoming Commission's intention to launch an initiative mobilising EUR 300 billion in additional public and private investment over the period 2015-2017. They also announced their support for the establishment of a Task Force that is to identify concrete actions to boost investment. Leaders also underlined the need for prompt implementation of the orientations set out in the “Strategic Agenda for the Union in Times of Change”, in particular those related to jobs, growth, and competitiveness. They invited the Commission, the Council and the Member States to translate these orientations into concrete policy actions. EU leaders noted that progress towards European integration, most importantly the establishment of the banking union, has contributed to a significant improvement in financial market conditions. The European Council formally appointed the new European Commission.
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| We are showing our resilience and, in fact, the new Commission, the new President of the European Council, the institutions, will keep this idea of reform, not only in the countries but also in the economic governance of the euro area and in the European Union. |
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José Manuel Barroso, President of the European Commission
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European Parliament elects Juncker Commission
On 22 October, the European Parliament gave its strong support to the new European Commission, with 423 votes in favour, 209 against and 67 abstentions. The Juncker Commission can thus start its term of office on 1 November 2014. Soon after the European Parliament gave its consent, on 24 October the European Council formally appointed the European Commission, in line with the EU Treaty. President-elect Juncker said that he was honoured to have received the democratic backing of the European Parliament, and that now it was “time to roll up our sleeves and get down to work: to kick-start economic recovery, create more and better jobs, address the plight of Europe's youth for a better future, protect the most vulnerable in our society and cope with the rapidly deteriorating geopolitical situation.”
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Euro area Member States submit draft budgetary plans for 2015 in accordance with economic governance rules
Euro area Member States submitted their draft budgetary plans on or before the deadline of 15 October as stipulated by EU economic governance rules. Cyprus and Greece do not need to submit these plans because they are currently subject to macroeconomic adjustment programmes. The draft budgetary plans are part of a process enshrined in EU Regulation No 473/2013, which is part of the so-called “Two-pack” that entered into force on 30 May 2013. The process is intended to ensure the coordination of fiscal policies among euro area Member States. The Commission will provide assessments of each Member State’s plan, as well as an assessment of the budgetary situation and prospects of the euro area as a whole. The opinion on each draft budgetary plan is based on the requirements of the Stability and Growth Pact (SGP). For Member States under the SGP’s preventive arm, the Commission considers the extent to which Member States have implemented the Country-Specific Recommendations made for them by the Commission under the European Semester; and in particular their compliance with Medium-Term Objectives (MTO) or the adjustment path towards the MTO. For Member States under the SGP’s corrective arm, also known as the Excessive Deficit Procedure, the Commission assesses compliance with the relevant Council recommendation. The Commission is scheduled to adopt an opinion on the draft budgetary plans by 30 November. However, if it identifies particularly serious non-compliance with SGP obligations, it adopts its opinion within two weeks of submission of the draft budgetary plan and requests a revised draft budgetary plan within three weeks of the date of its opinion.
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ECB’s in-depth review shows banks need to take further action
The European Central Bank (ECB) has published the results of a year-long examination of the resilience and positions of the 130 largest banks in the euro area as of 31 December 2013. The comprehensive assessment published on 26 October consisted of the asset quality review (AQR) and a forward-looking stress test of the banks coordinated by the European Bank Authority. It found a capital shortfall of EUR 25 billion at 25 banks. Twelve of the 25 banks have already covered their capital shortfall by increasing their capital by EUR 15 billion in 2014. The remaining banks with shortfalls must prepare capital plans within two weeks of the announcement of the results. They will then have up to nine months to cover the capital shortfall. The review uncovered an additional EUR 136 billion in non-performing exposures, and showed that in a severe scenario banks’ top-quality, loss-absorbing Common Equity Tier 1 capital would be depleted by about EUR 263 billion, thereby reducing the median CET1 ratio from 12.4% to 8.3%. The European Commission on 26 October welcomed the publication of the results and expressed its full support for the follow-up.
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Council backs measures to support investment; acts to combat tax evasion by extending scope for automatic exchange of information
At the Council meeting on 13-14 October, EU finance ministers adopted conclusions on measures to support investment in Europe. The Council called on the Commission to analyse the factors that are conducive to improving the business climate in Europe, notably the key nexus between investment and the implementation of structural reforms. It also welcomed the creation of a task force, co-chaired by the European Investment Bank and the Commission with the participation of all Member States, to analyse the main barriers and bottlenecks to investment and propose practical solutions to overcome them. In separate conclusions, the Council also agreed on revisions to the Directive on Administrative Cooperation, which extend the scope of the automatic exchange of information between tax authorities so as to enable them to better combat tax evasion and to improve tax collection. “Bank secrecy is dead, and automatic exchange of information will be applied in its widest form,” said Algirdas Šemeta, Commissioner for Taxation and Customs Union, Statistics, Audit and Anti-fraud.
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Latest Eurobarometer survey shows stable support for euro
Support for the euro is stable, with 57% of euro area citizens thinking that the common currency is a good thing for their country. This is the result of the latest Eurobarometer survey, which was carried out in the 18 euro area Member States from 6-8 October and published on 24 October. Irish citizens have the most positive attitude towards the euro, with 76% saying that it is good for Ireland. For the first time the survey also covers Latvia, where the euro was introduced in January 2014. Fifty-five per cent of Latvian citizens think that the euro is a good thing for their country. When asked if the euro is a good thing for the EU as a whole, 69% of respondents in the euro area agreed. The survey also shows that more than three quarters (79%) of euro area citizens support significant economic reforms to improve the performance of national economies. In addition, more than two thirds of respondents were in favour of more coordination of economic policies (69%). Citizens were asked specifically for the first time whether they are in favour of abolishing 1- and 2-cent coins and applying mandatory up- and down-rounding of the final sum of purchase in shops and supermarkets. Sixty percent of respondents were in favour of this while 37% were not in favour.
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Second post-programme surveillance mission to Spain concludes that economy and reforms are on track
Staff from the European Commission, in liaison with the European Central Bank, carried out the second post-programme surveillance visit to Spain on 6-10 October. The European Stability Mechanism participated in the meetings on aspects related to its own Early Warning System. The mission concluded that recent economic and financial developments confirm the positive trend in stabilisation that began two years ago. The economic recovery gathered momentum during 2014, with GDP growing at a faster pace than the euro area average. Moreover, the liquidity situation of Spanish banks has improved further and banks reported increased profits in the first half of 2014. There is a need to remain vigilant, however, as large imbalances from the pre-crisis period and related policy challenges in the labour market and beyond remain. The next post-programme surveillance mission will take place in spring 2015.
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Quarterly Report on the Euro Area finds that de-leveraging by corporations and households still has a long way to go
The latest Quarterly Report on the Euro Area, which was published on 14 October, reviews on going developments in household and corporate indebtedness in the euro area and analyses the different patterns of adjustment that are underway. The analysis suggests that the adjustment process still has a long way to go, including in economies that have already deleveraged to a considerable degree. In several vulnerable countries, corporations and households may still need to cut their debt-to-GDP ratios by at least 30 percentage points. The first special topic discusses the short-term impact of structural reforms on economic activity in a constrained monetary policy environment in which interest rates are close to zero. It shows that the negative effects of reforms on growth in the short term are small, and that postponing reforms is not a good policy option. The second special topic examines the differing vulnerability of Member States to fluctuations in the euro’s exchange rate.
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At G20 and IMFC meetings in Washington, finance ministers agree on need for ambitious measures on supply and demand side
Vice-President Katainen participated in the G20 Ministerial and the meeting of the IMF International Monetary and Financial Committee (IMFC) on 9-11 October in Washington. The key message from the IMFC meeting was that ambitious measures on the supply and demand side are needed to lift current and potential growth and ensure a strong, sustainable, balanced and job-rich global economy. At the G20 meeting, discussions focused on the Global Infrastructure Initiative that will consist of a multi-year set of actions designed to increase the quality and quantity of infrastructure across the G20.
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First estimation based on ESA 2010 shifts level of EU and euro area GDP upward; growth rates almost unaffected
On 17 October, Eurostat, the EU statistical office, released the first estimation of European GDP based on the newly adopted European System of Accounts 2010 (ESA 2010). The new methodology resulted in an upward shift in the level of EU and euro area GDP, while growth rates were almost unaffected. ESA 2010 provides a revised set of concepts, definitions, classifications and accounting rules that enable EU Member States to produce consistent, reliable and comparable statistical descriptions of their economies. The average annual difference between the level of GDP in current prices under ESA 2010 and ESA 95 over the period 1997-2013 amounted to +3.4% in both the euro area and the EU. The impact of the changes on the GDP level varied significantly across Member States. In 2010, they were largest in Cyprus (+9.5%) and in the Netherlands (+7.6%), while relatively small or even negative changes were observed in Luxembourg (+0.2%) and Latvia (-0.1%).
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ECJ conducts hearing on case regarding sovereign bond purchases deferred by German Federal Constitutional Court
On 14 October, the European Court of Justice (ECJ) conducted a hearing on a case addressing the question of whether the European Central Bank in 2012 violated the EU Treaty in announcing its intention to buy sovereign bonds under the so-called Outright Monetary Transactions (OMT) programme, thereby exceeding the monetary policy mandate of the ECB and disregarding the prohibition on monetary financing. The ECJ acted at the behest of the German Federal Constitutional Court, which lodged a request for a preliminary ruling in February 2014. During the hearing it was announced that the Advocate General would deliver his opinion on 14 January 2015. The ECJ's ruling is expected later in 2015.
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Tax reforms in EU Member States 2014 - Tax policy challenges for economic growth and fiscal sustainability. European Economy 6/2014.
Applying an indicator-based approach, this report identifies the tax policy challenges faced by the EU’s Member States. First, it examines the role that taxation can play in addressing consolidation needs and explores ways to make tax structures more growth-friendly. Reducing the relatively high tax burden on labour in the EU, for example by shifting to other revenue bases less detrimental to growth, can have positive consequences on growth and employment. Second, it takes an in-depth look at the size of tax bases, analysing housing taxation, the debt bias in corporate taxation, tax expenditures in direct taxation and the VAT base. The report also assesses three specific areas of tax policy – environmental taxes, tax compliance and governance, and the link between the tax system and income. Prepared jointly by the European Commission's Directorate General for Economic and Financial Affairs and the Directorate General for Taxation and Customs Union “Tax Reforms in EU Member States” is an annual review of the most important tax reforms recently implemented by governments in the EU.
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Main euro cash legislation.
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The European Commission issued a compilation which brings together core legal texts on the Economic and Monetary Union and the euro.
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| Directorate-General for Economic and Financial Affairs |
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