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Annual Growth Survey calls for strengthening the recovery and fostering convergence
The Annual Growth Survey (AGS) for 2016 was published on 26 November. The AGS launches the 2016 European Semester, the annual cycle of economic governance. It sets out general economic priorities for the EU and provides Member States with policy guidance for the following year. The Commission considers that the economic and social priorities of the 2015 Annual Growth Survey remain valid. The priorities for 2016 are an update of these priorities, taking into account the progress made and the new challenges emerging. This is reflected in the three priorities proposed for 2016. They are to re-launch investment; pursue structural reforms to modernise Europe’s economies; and to maintain responsible public finances. The EUR 315 billion EU Investment Plan needs to be accompanied by an effort at national level, and barriers need to be removed to stimulate investment. Member States also need to continue structural reforms, and to support growth- and equity-friendly fiscal consolidation. Tax systems need to address disincentives to employment creation and be made fairer and still more effective. With a stronger emphasis on employment and social issues and on the euro area dimension, the 2016 AGS is accompanied by a recommendation to the Council on the economic policy of the euro area as a whole. This is an important change from previous Semester cycles, when such a recommendation was issued later in the cycle. This recommendation focuses on key issues for a well-functioning euro area and provides orientation on concrete actions to be implemented.
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We are committed to bringing economic and social levels across Europe closer together and closer to the best performers.
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Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue
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Alert Mechanism report cautions against high indebtedness and lack of investment
The 2016 Annual Growth Survey published on 26 November was accompanied by the Alert Mechanism Report (AMR) to start the regular annual surveillance cycle under the Macroeconomic Imbalances Procedure (MIP).
The AMR aims to identify risks of imbalances that require further in-depth investigation as imbalances may hinder the performance of national economies, the euro area, or the EU as a whole. This year, the employment and social dimensions of the AMR have been strengthened through the addition of three headline related indicators to the MIP scoreboard. There is also a particular focus on the euro area as such, given the deeper interdependence of its economies. The AMR shows that Member States are continuing to address the macroeconomic imbalances identified in previous years. Vulnerabilities associated with high debt levels remain a source of concern, however, amidst subdued domestic demand. Moreover, surpluses in some Member States are set to remain large over the forecast horizon. Moreover, the euro area as a whole posts a current account surplus that is one of the world's largest. The surplus largely reflects an excess of domestic savings over investment at the area level. A coordinated approach to macroeconomic policies is warranted to tackle imbalances while supporting the recovery.
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Commission assesses 2016 Draft Budgetary Plans of euro area Member States
On 17 November, the European Commission completed its assessment of the 16 Draft Budgetary Plans (DBPs) for 2016 that euro area Member States submitted by 15 October. No DBP for 2016 has been found in particularly serious non-compliance with the provisions of the Stability and Growth Pact (SGP). In several cases, however, the Commission finds that the planned fiscal adjustments fall short of what is required by the SGP or risk doing so. Cyprus and Greece did not submit DBPs as they are under economic adjustment programmes, and Portugal did not submit a plan within the deadline set by EU legislation. The Commission had already adopted an Opinion on Spain’s DBP on 12 October, well ahead of the deadline due to elections in December. The Commission also assessed the budgetary situation and fiscal stance in the euro area as a whole, finding that both deficit and debt ratios as a percentage of GDP should fall in 2016. The Commission has offered to present its Opinions to the parliaments of the Member States concerned and/or to the European Parliament, if invited. In their statement of 23 November, the Eurogroup stated that they would assess implementation of the Draft Budgetary Plans and of additional commitments.
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Commission finds that Bulgaria, Denmark and Finland comply with Stability and Growth Pact
The Commission released reports on 17 November in which it concludes that Bulgaria, Denmark and Finland, have complied with the deficit and, in the case of Finland, the debt criterion, of Article 126(3) of the Treaty on the Functioning of the European Union. General government deficits were above the Stability and Growth Pact (SGP) target of 3% of GDP in all three countries. The excesses are considered exceptional and temporary, however, within the meaning of the SGP, and expected to fall under the 3% threshold for Bulgaria in 2015 and for Denmark and Finland in 2016. Finland was considered compliant with the SGP’s debt criterion, but given its rising debt-to-GDP ratio, the Commission report recommended the swift adoption and implementation of structural reforms to improve fiscal sustainability.
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A stronger Banking Union: new measures to reinforce deposit protection and further reduce banking risks
The Commission has proposed a euro area wide insurance scheme for bank deposits as well as measures to reduce remaining risks in the banking sector in parallel. The measures announced on 24 November are to complete the Banking Union that was established to underpin confidence in participating banks. The proposed European Deposit Insurance Scheme (EDIS) would guarantee citizens' deposits at the euro area level, while reinforcing financial stability and further dissolving the link between banks and their sovereigns. The scheme would be mandatory for euro area Member States whose banks are today covered by the Single Supervisory Mechanism; but open to other EU Member States who want to join the Banking Union. The measures are one of a number of steps set out in the Five Presidents' Report to strengthen the EU's economic and monetary union. The proposal is accompanied by a Communication, which sets out other measures to further reduce remaining risks in the banking system in parallel to the work on the EDIS proposal.
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ESM approves disbursement of EUR 2 billion after Eurogroup agrees that Greece has met milestones
On 23 November, the European Stability Mechanism (ESM) Board of Directors authorised the disbursement of EUR 2 billion to Greece. The ESM decision followed agreement by the Eurogroup Working Group (EWG) of 21 November that the Greek authorities had successfully completed the first set of milestones and financial sector measures that are essential for a successful bank recapitalisation process. The disbursement will primarily be used for debt service, as well as for arrears clearance, and co-financing projects funded by EU structural funds. Following the relevant state aid decisions, it will be up to the ESM Board of Directors, however, to decide on a case-by-case basis whether to transfer funds – which are earmarked for recapitalisation of the Greek banking sector – to the Hellenic Financial Stability Fund. The remaining EUR 1 billion from the loan sub-tranche of EUR 16 billion approved in August 2015 will be available for disbursement upon completion of a second set of milestones.
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Staff-level agreement reached on 8th review of Cyprus’ economic reform programme
Staff teams from the International Monetary Fund (IMF) and the European Commission (EC), in liaison with the European Central Bank (ECB), visited Nicosia during November 3-13 to conduct the 8th review of Cyprus’s economic reform programme. The teams reached staff-level agreement on policies that could serve as a basis for completion of the review, reflecting the progress and policy commitments under the programme. Economic activity in Cyprus has continued on a positive trend since early 2015, while the banking system continues to heal. Non-performing loans remain high and the pace of lending is subdued, however, despite evidence that the slow pace of debt restructuring is picking up. Fiscal targets for the third quarter of 2015 were met with substantial margins. In addition, the authorities are making progress on their structural reform agenda. Conclusion of the reviews is subject to the approval processes of both the EU and the IMF, which will most likely be initiated in January 2016.
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Ireland post-programme surveillance: economy well on track
Staff from the European Commission, in liaison with staff from the European Central Bank, visited Ireland to carry out the fourth post-programme surveillance (PPS) mission from 9-13 November. This was coordinated with the International Monetary Fund's fourth post-programme monitoring mission. Staff from the European Stability Mechanism (ESM) also participated in the meetings on aspects related to the ESM’s Early Warning System. Ireland remains the fastest growing EU economy; in fact, its exceptionally strong economic rebound testifies to the successful adjustment of the economy over the past several years. Growth is now supported by strong domestic demand, unemployment continues to decline well below the euro area average, and financial sector repair is progressing. Ireland is on track to correct its excessive deficit, and gross government debt is set to decline to well below 100% of GDP next year. To underpin growth in the medium term, however, housing and possible infrastructure bottlenecks will need to be addressed. The next PPS mission will take place in the spring of 2016.
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G20 Leaders focused on terrorism and the global refugee crisis; note slow and uneven global economic growth
The G20 summit took place in Antalya on 15-16 November, only two days after the terrorist attacks in Paris. Commission President Jean-Claude Juncker said that the Paris attacks should not deter countries from protecting and relocating refugees on their territories, and noted that: “It is imperative to see that those who organised the attacks and perpetrated them are precisely the ones the refugees are trying to flee.” The traditional topics of the global economy, investment, financial regulation, international taxation and the reform of the international financial architecture were therefore less central this time. Leaders acknowledged that the global recovery is continuing, but that it is disappointing and uneven. The main summit deliverables from an economic and financial perspective included the Antalya Action Plan for Growth and Jobs; the updated G20 Growth and Investment strategies and Employment Plans; the Base Erosion and Profit Shifting Action Plan; and the finalisation of the last tool needed to end "too-big-to fail" in the banking sector. China will take over the G20 Presidency on 1 December.
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ECFIN Annual Research Conference explores challenges to fiscal policy making
DG ECFIN held its Annual Research Conference 2015, organised in co-operation with the Centre for Economic Policy Research (CEPR), on November 23. Eminent scholars and top economic policy makers explored old and new challenges to fiscal policy making. The conference featured keynote addresses by Commissioner Pierre Moscovici and Vitor Gaspar, the head of the IMF's Fiscal Affairs Department. Dedicated sessions with distinguished speakers and discussants were devoted to stabilisation policies and growth in a low interest rate environment; the Economics of high public debt reconsidered; Fiscal federalism revisited; and Fiscal rules, fiscal institutions, or both: political economy considerations. ECFIN invites readers to consult the conference's webpage for the individual contributions.
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Real Economy episode shines a light on Europe’s shadow economy
The latest episode of "Real Economy" uses animation to provide a crash course in what the shadow economy is and how it can impact all of us. Host Maithreyi Seetharaman also speaks with Friedrich Schneider, Professor of Economics at Johannes Kepler University in Linz, Austria to gain some expert insight into what brings people into Europe's shadow economy and whether it can realistically ever be stamped out. Real Economy visits Denmark to gain a better understanding of popular attitudes towards the shadow economy and how to fight off-the-books transactions. Over the past 10 years, the country has reduced its shadow economy by one-third, yet still loses an estimated EUR 1.5-3 billion in tax revenue each year, while Europe as a whole loses an estimated 54 billion. A new EU Platform on undeclared work aims to share best practices and information, raise awareness and strengthen cross-border operational cooperation. Real Economy explains the complexities of economic matters in the EU to Euronews' daily audience of 6.5 million viewers. Besides watching it on TV, viewers can also follow it online - live or on demand.
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Euro area recommendation
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For the first time, the Commission is publishing a recommendation for the euro area in November, together with the Annual Growth Survey, in order to better integrate the euro area and national dimensions of EU economic governance. The euro area recommendation provides tailored advice to euro area Member States on issues relevant for the functioning of the euro area as a whole.
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Directorate-General for Economic and Financial Affairs
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