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Winter Economic Forecast: outlook improved but risks remain
For the first time since 2007, the economies of all EU Member States are expected to grow again this year, according to the European Commission’s winter forecast. Over the course of this year, economic activity is expected to pick up moderately in the EU and in the euro area, before accelerating further in 2016. Growth this year is forecast to rise to 1.7% for the EU as a whole and to 1.3% for the euro area. In 2016, annual growth should reach 2.1% and 1.9% respectively, on the back of strengthened domestic and foreign demand, very accommodative monetary policy and a broadly neutral fiscal stance. While growth prospects across Europe are still limited by a weak investment environment and high unemployment, a number of key developments have brightened the near-term outlook since the autumn. Oil prices have declined faster than previously, the euro has depreciated noticeably, the European Central Bank has announced quantitative easing, and the European Commission has presented its Investment Plan for Europe. All these factors are set to have a positive impact on growth.
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Europe's economic outlook is a little brighter today than when we presented our last forecasts…[and] the Investment Plan for Europe and the ECB’s important recent decisions will help create a more supportive backdrop for reforms and smart fiscal policies.
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Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs
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ECB announces expanded asset purchase programme
On 22 January, the European Central Bank (ECB) announced plans to expand its asset purchase programme. Under the expanded programme, the ECB will now purchase bonds issued by euro area central governments, agencies and European institutions in addition to its existing purchases of private sector assets. Combined monthly asset purchases amounting to EUR 60 billion will be carried out until at least September 2016 and in any case until a sustained adjustment in the path of inflation of below, but close to, 2% over the medium term has materialised. Since only purchases of the securities of European institutions (which will be 12% of the additional asset purchases and acquired by National Central Banks) will be subject to loss sharing, and the ECB will hold 8% of the additional asset purchases, a total of 20% of the additional asset purchases will be subject to a regime of risk sharing. The ECB decided to expand its asset purchase programme in order to address the risks of a prolonged period of low inflation. The asset purchases are intended to provide a monetary stimulus to the economy in a context where key ECB interest rates are at their lower bound.
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Eurobarometer: Support for the euro in Lithuania increases since changeover
A Eurobarometer survey conducted in Lithuania after the euro fully replaced Lithuanian litas shows that support for the common currency has increased, while a substantial majority (86%) of citizens say the changeover happened smoothly and efficiently. According to results made public on 30 January, 60% of respondents said that they thought the euro was good for Lithuania, while a higher proportion (79%) said that they thought the euro was good for the EU. Moreover, compared with the results from a Eurobarometer (402) survey conducted in September 2014, Lithuanians now feel more positively about the euro: nearly two-thirds of respondents think the consequences for Lithuania will be positive and 54% see positive consequences for themselves personally – an increase in support of 19 and 17 percentage points respectively. A substantial majority, 92%, agreed that they felt well informed about the euro.
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Georgia: EU disburses EUR 13 million grant in Macro-Financial Assistance
The European Commission, on behalf of the EU, has disbursed EUR 13 million in grants to Georgia. The disbursement, which took place on 27 January, represents the grant part of the first tranche of the EU’s EUR 46 million Macro-Financial Assistance programme (MFA) for Georgia approved in August 2013. This tranche also includes EUR 10 million in loans, which will be disbursed shortly. The second tranche, amounting to EUR 23 million, and consisting of EUR 10 million in grants and EUR 13 million in loans, will be disbursed in mid-2015. The MFA programme is intended to strengthen Georgia's balance of payments and budgetary position and to support reforms aimed at reinforcing economic governance, increasing social inclusiveness and promoting closer economic integration with the EU.
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ECOFIN amends parent-subsidiary directive to close tax loopholes
European finance ministers on 27 January amended the EU’s parent-subsidiary directive, as the Commission had proposed in November 2013, adding a binding anti-abuse clause to prevent tax avoidance and aggressive tax planning by corporate groups. The aim is to stop the parent-subsidiary directive from being misused for the purposes of tax avoidance, and to achieve greater consistency in its application in different Member States. The anti-abuse clause will prevent Member States from granting the benefits of the directive to arrangements that are not “genuine”; in other words, those that have been put in place merely to obtain a tax advantage, without reflecting economic reality. Member States will have until 31 December 2015 to introduce an anti-abuse rule into national law. While the clause applies across the EU, Member States can opt to apply stricter national rules, as long as they meet minimum EU requirements.
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Vice-President Katainen hits the road to promote EU investment plan: stops in Italy and Germany
European Commission Vice President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness, has taken to the road to promote the EU’s EUR 315 billion investment plan. During the 28-country #investEU roadshow, Vice-President Katainen explains why the EU needs a new Investment Plan, where the money comes from and which kinds of investments will be supported. He also describes how private investors can participate in the new European Fund for Strategic Investments (EFSI). Following a first roadshow stop in Romania in December, Vice-President Katainen visited Rome on 15 January to exchange views on the Investment Plan with parliamentarians, government officials and business executives, and stopped in Milan the following day to meet with the largest association representing entrepreneurs in Italy, as well as members of other civil society organisations. On 29 January, the Vice-President met with German Finance Minister Wolfgang Schäuble, and German parliamentarians, business leaders and academics in Berlin, and visited a medical technology company. He then visited Frankfurt to meet representatives of the finance and insurance industries as well as students and the media. Stops in all other EU countries are scheduled through the autumn.
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EU Investment Offensive: Commission and EIB launch new advisory service on financial instruments
On 19 January, the European Commission, in partnership with the European Investment Bank, launched fi-compass, a new advisory service on financial instruments for the European Structural and Investment Funds. The service is part of the “one stop shop” advisory hub, to be launched as an important part of the EU Investment Plan. The aim is to provide clear information and to help connect investment finance with a pipeline of well-structured and trusted projects. Financial instruments include loans, guarantees, equity, venture capital and other risk-bearing instruments, possibly combined with interest rate subsidies or guarantee fee subsidies. They represent a resource-efficient way of using EU budget funds to enable investment in the economy.
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The discretionary fiscal effort: an assessment of fiscal policy and its output effect. European Economy. Economic Papers 543.
This paper presents an indicator of the fiscal stance that combines features of the bottom-up, narrative approach on the revenue side with a refined version of the top-down, traditional approach of the structural balance on the expenditure side. With these characteristics, the indicator offers an image of fiscal policy that avoids both the 'endogeneity problems' of the structural balance and the 'indeterminacy' of the narrative approach. This indicator is used to shed light on EU fiscal policies and estimate the average short-term output effects of fiscal policy. Results suggest that, with some exceptions, fiscal policy has been conducted in a more stop and go and pro-cyclical fashion over the past decade than suggested by traditional indicators. The average fiscal multiplier is estimated at slightly below unity on average, with higher multipliers associated with expenditure shocks, and higher multipliers in times of declining output gaps.
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European Union Economic Forecast
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Directorate-General for Economic and Financial Affairs
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