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Eurogroup finance ministers preparing formal launch of negotiations on support programme for Greece
On 16 July, Eurogroup finance ministers decided to launch, where necessary, national procedures for providing their country’s approval to formally starting negotiations on a third financial support programme for Greece, funded by the European Stability Mechanism (ESM). The financial support programme will be accompanied by a Jobs and Growth Plan for Greece of more than EUR 35 billion. Tapping into various EU programmes, the plan aims to help support the Greek economy by helping Greece maximise its use of EU funds until 2020, provided that the conditions agreed upon by the Euro Summit are met. Earlier on 16 July, the Greek Parliament had endorsed the Euro Summit statement of 12 July and approved legislation implementing the first set of prior actions listed in the statement, which were a precondition for starting negotiations. Once national parliaments, where necessary, have given the green light, a formal decision by the Eurogroup and the ESM Board of Governors would provide the three institutions (European Commission, European Central Bank and the International Monetary Fund) with a mandate for negotiations to establish an ESM programme. The 3-year programme will be subject to strict conditionality, taking into account the 10 July assessment by the Commission and the ECB on debt sustainability, financing needs and risks to the euro area’s financial stability. To meet Greece's short-term financing needs, the Council on 16 July agreed to the Commission proposal of 14 July on a conditional loan from the European Financial Stability Mechanism (EFSM) of up to EUR 7 billion for up to three months. The loan is disbursable in one instalment and to be repaid via the ESM assistance.
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There will not be a 'Grexit'... I am satisfied both with the form and substance of the agreement
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Jean-Claude Juncker, President of the European Commission
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Council issues 2015 country-specific recommendations on Member States’ economic policies, formally concluding the European Semester
On 14 July, the ECOFIN Council of finance ministers issued the 2015 country-specific recommendations and opinions on economic, employment and fiscal policies planned by EU Member States. In addition to recommendations for 26 Member States (no such recommendations for Cyprus and Greece, at that time subject to macroeconomic adjustment programmes), it also issued a recommendation on the economic policies of the euro area, and explanations in cases where the texts do not correspond with those proposed by the Commission on 13 May. The Council thereby formally concluded the 2015 European Semester, the annual policy monitoring process, after the European Council endorsed the recommendations at its meeting in June and called for their implementation. The 2015 European Semester priorities focus on a coordinated boost to investment via the investment plan for Europe; a renewed commitment to structural reforms; and continued fiscal responsibility. The Council also discussed the five Presidents' report "Completing Europe's Economic and Monetary Union" and exchanged views on the work programme of Luxembourg's EU Presidency.
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Commission meets Luxembourg government to kick-off Luxembourg’s EU Presidency: “A union for citizens”
Commission President Jean-Claude Juncker and the College of Commissioners visited Luxembourg City on 3 July to mark the start of Luxembourg’s EU Presidency and discuss the priorities for the next six months with their counterparts in the Luxembourg government. President Juncker met with Luxembourg’s Prime Minister Xavier Bettel, and in a joint press conference the two leaders confirmed that the priorities of the Presidency and the Commission are identical. The Luxembourg programme is based on the strategic agenda of the European Council, the ten priorities of the Juncker Commission and the Commission's 2015 work programme. Entitled “A union for citizens”, it aims to make Europe “closer to its citizen's expectations and more effective for companies and SMEs”. The programme consists of seven priorities that include stimulating investment to boost growth and employment, notably by building on the Investment Plan for Europe; integrating the four pillars of EMU; and revitalising the single market by focusing on its digital dimension. President Juncker also paid tribute to the achievements of the outgoing Latvian presidency, particularly regarding the investment plan.
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Investment plan: first transactions in Luxembourg and the UK to benefit from EFSI support concluded, Katainen taking road show to the UK
The European Investment Fund (EIF) and Banque Internationale of Luxembourg SA (BIL) signed an agreement on 3 July to increase lending to innovative small and medium-sized enterprises (SMEs) as well as small mid-caps in Luxembourg. This is the first transaction in Luxembourg to benefit from the support of the European Fund for Strategic Investments (EFSI). The new agreement allows BIL to provide EUR 60 million of finance to innovative companies in Luxembourg over the next two years, with the loans backed by a guarantee from the EIF. Similarly, on 15 July, the EIF concluded the first EFSI-supported transaction in the UK, signing an agreement with Santander UK that will enable the bank to provide EUR 140m (GBP 100m) finance to innovative companies in the UK over the next two years. Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness, together with Commissioner Jonathan Hill, continued the road show to promote the EUR 315 billion Investment Plan for Europe with a visit to the United Kingdom on 15-17 July. Meetings included a roundtable with the financial services industry on how the City of London can contribute to the Investment Plan. Vice-President Katainen is meeting Heads and Members of Government, business leaders, SMEs, investors and students as part of the 28-country road show to promote and explain the investment plan. The road show can be followed in detail on Twitter.
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Commission adopts decision to disburse EUR 600 million in assistance to Ukraine
The European Commission decided on 7 July to initiate the process through which EUR 600 million will be disbursed to Ukraine in the form of a loan. This is the first instalment under the new EUR 1.8 billion macrofinancial assistance (MFA) programme for Ukraine. The decision builds on the Memorandum of Understanding (MoU) and Loan Facility Agreement (LFA) between Ukraine and the EU. Through the MFA programme, the EU helps cover Ukraine’s urgent financing needs, while supporting its economic stabilisation. In addition, the EU’s MFA package will assist the Ukrainian authorities in implementing important reforms in the areas of public finance management, governance and transparency, the energy sector, social safety nets, the business environment and the financial sector. In related news, the EU announced on 1 July that it would increase its humanitarian aid to the estimated 5 million people in need of assistance in Ukraine, with a new aid package worth EUR 15 million.
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Government expenditure accounted for 48.1% of GDP in the EU in 2014 and was mainly for social protection
In 2014, total general government expenditure amounted to EUR 6.7 trillion or almost half (48.1%) of EU GDP, declining slightly from 2013, and was mainly devoted to social protection. Eurostat, the EU statistical office, released this information on 7 July in an online publication. In the euro area, the share stood at 49.0% in 2014 (49.4% in 2013). Among EU Member States, general government expenditure varied in 2014 from less than 35% of GDP in Lithuania and Romania to more than 57% in Finland, France and Denmark. In the EU, social protection was by far the most important function, accounting for 40.2% of total general government expenditure. The next most important areas in terms of general government expenditure were health (14.8%), "general public services" subcategories such as external affairs and public debt transactions (14.1%), education (10.3%) and economic affairs (8.8%). The data at the EU level mask significant differences between the EU Member States regarding both the share and the ranking of each function of general government expenditure.
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Quarterly Report on the Euro Area (QREA), Volume 14, No 2 (2015)
This edition of the QREA focuses on the service sector, which accounts for 51% of euro area GDP. Its overall importance to the economy, however, is even greater, as services are competitiveness-enhancing 'inputs' of manufacturing exports and an efficient single market for services helps the euro area to adjust to economic shocks. This focus section finds evidence that service sectors in the euro area are underperforming, which suggests that reform of the service sector could contribute significantly to boosting exports, growth and competitiveness. A first special topic in the QREA revisits the macroeconomic effects of oil price changes and finds that the positive effect of lower oil prices on growth tends to be less than the negative effect on growth of higher oil prices. A second special topic concludes that the business cycle de-synchronisation among euro area Member States resulting from the sovereign debt crisis, if unaddressed, could undermine the effectiveness of the common monetary policy and leave some countries more at risk to shocks than others.
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How services can boost competitiveness and manufacturing exports
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Market services, including wholesale and retail trade, financial services, transport and information technology, are the largest economic sector in the euro area, accounting for 51% of GDP. Their overall importance to the economy, however, is even greater, as services are also competitiveness-enhancing ‘inputs’ and facilitators of manufacturing exports.
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Directorate-General for Economic and Financial Affairs
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