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European Semester 2016: fewer Member States have economic imbalances than a year ago
The European Commission has found that EU Member States are making progress in addressing imbalances in their economies and in carrying out the country-specific recommendations issued last year. While they vary in degree across countries and policy areas, these efforts are key in strengthening the European recovery and fostering convergence. They also reflect the focus of this year’s European Semester: re-launching investment, implementing structural reforms and pursuing responsible fiscal policies. The Commission decided last November that 18 Member States merited in-depth reviews to assess whether they were experiencing macroeconomic imbalances, and if so, how serious these imbalances were. Of these countries, the Commission has concluded that six are not experiencing imbalances in the framework of the Macroeconomic Imbalances Procedure (MIP), while 12 are experiencing either imbalances or excessive imbalances. In addition to making the implementation of the MIP clearer and more transparent by reducing the number of categories for imbalances from six to four, the Commission is also bringing a greater focus on employment and social considerations into the European Semester.
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Today we can see clearly that those countries that have moved furthest and fastest in reforming their economies are reaping the rewards of those efforts. Others need to raise their game if they are to deliver more jobs and growth for their citizens.
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Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs
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Fiscal Sustainability Report 2015: EU finance ministers welcome decline in short-term fiscal risk, voice concern over debt levels
EU finance ministers meeting on 8 March welcomed the conclusions of the Fiscal Sustainability Report 2015, which analysed the fiscal sustainability of 26 EU countries. The report notes that fiscal risks over the short-term have receded since publication of the previous report in 2012, with no EU country among those analysed appearing to be at high risk. On the other hand, the finance ministers underscored that vulnerabilities remain, particularly in the Member States with high or increasing levels of debt. Moreover, more than half of the countries analysed face long-term risks to their fiscal sustainability, primarily due to the cost of ageing, which is projected to rise. Finance ministers agreed that policies to enhance fiscal sustainability should be embedded in the EU’s three-pronged strategy consisting of reducing government debt; increasing productivity and employment; and reforming pension, health care and long-term care systems. In related news, as part of the 2016 European Semester, on 9 March the Commission reminded Member States of the need to take measures necessary to meet their obligations under the Stability and Growth Pact.
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Eurogroup supports Cyprus’ early exit from macroeconomic adjustment programme
On 7 March, the Eurogroup of euro area finance ministers announced its support for the Cypriot government's decision to exit its macroeconomic adjustment programme without a successor arrangement. In total, about 30% of the EUR 9 billion programme envelope remains unutilised. Cyprus also exited its International Monetary Fund programme on the same day. Euro area finance ministers commended the Cypriot authorities for their successful implementation of the programme over the past three years. Recent economic activity in Cyprus has continued on a positive trend, and the banking system has further healed, while fiscal performance has exceeded expectations. As a result, investor confidence in the economy has largely been restored and the Cypriot government has been able to return to international financial markets. Work remains to be done, however, in reducing the banking sector’s non-performing loan ratio to healthier levels and in completing the privatisation of the Cypriot Telecommunications Authority. Along with public administration reform and other structural reforms discussed during the programme, this would cement the improvements in public finance and support sustained economic growth.
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Investment Plan for Europe: EFSI support for SMEs in Italy, wind farm in Sweden, and loans to innovative companies in France
The European Investment Fund (EIF) and Fondo di Garanzia per le PMI, have signed a COSME agreement in Italy, benefiting from the support of the European Fund for Strategic Investments (EFSI), the European Investment Bank (EIB), Mirova and Eolus signed a contract to provide financing for the construction of Langmarken, an onshore wind farm located in the Värmland County in Sweden. This is the first EIB project to be signed in Sweden under EFSI. In France, the EIF has signed an EFSI-backed InnovFin deal with Banque Populaire to provide EUR 300 million of loans to innovative companies over the next 2 years via the latter’s regional network. The deals reflect the EIB Group’s commitment under EFSI to accelerating lending and guaranteeing transactions capable of boosting jobs and growth in the EU. As of 10 March 2016, the EIB Group – the European Investment Bank and the European Investment Fund – had approved EUR 10.6 billion of new financing to be backed by EFSI guarantees from the EU budget. This financing is expected to trigger total investment worth more than EUR 76 billion, or approximately 24% of the final target of EUR 315 billion.
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ECB lowers key rates, increases monthly asset purchases to EUR 80 billion; expands asset purchase programme to non-bank assets
On 10 March, the European Central Bank (ECB) announced a series of measures designed to increase financing to the real economy. The ECB said it would lower all of its key rates: the interest rate on the main refinancing operations of the Eurosystem would be decreased by 5 basis points to 0.00%; the interest rate on the marginal lending facility would be decreased by 5 basis points to 0.25%; and the interest rate on the deposit facility would be decreased by 10 basis points to
-0.40%. All changes took effect as of 16 March. In addition, the ECB decided to expand monthly purchases under the asset purchase programme (APP) to EUR 80 billion starting in April. Moreover, under a new corporate sector purchase programme, investment grade euro-denominated bonds issued by non-bank corporations established in the euro area will be included in the list of assets that are eligible for regular purchases as part of the APP. Purchases are to start towards the end of the second quarter of 2016. This measure is expected to strengthen the link between asset purchases and financing of the real economy.
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GDP in fourth quarter of 2015 up by 0.3% in euro area and 0.4% in EU compared with previous quarter
Seasonally adjusted GDP rose by 0.3% in the euro area and by 0.4% in the EU during the fourth quarter of 2015, compared with the previous quarter, according to an estimate published on 8 March by Eurostat, the statistical office of the EU. In the third quarter of 2015, GDP also grew by 0.3% and 0.4% respectively. Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.6% in the euro area and by 1.8% in the EU in the fourth quarter of 2015, after +1.6% and +1.9% respectively in the previous quarter. Over the whole year 2015, GDP rose by 1.6% in the euro area and by 1.9% in the EU, compared with 0.9% and 1.4% respectively in 2014. Household final consumption expenditure contributed positively to GDP growth in both the euro area and the EU (+0.1 and +0.2 percentage points), as did gross fixed capital formation (+0.3 percentage points and +0.2 percentage points). The contribution of the external balance to GDP growth was negative for both regions, while the contribution of changes in inventories was positive.
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Employment up by 0.3% in euro area and by 0.1% in the EU
The number of persons employed increased by 0.3% in the euro area and by 0.1% in the EU in the fourth quarter of 2015 compared with the previous quarter, according to national accounts estimates published by Eurostat, the statistical office of the EU. In the third quarter of 2015, employment increased by 0.3% in both zones. Compared with the same quarter of the previous year, employment increased by 1.2% in the euro area and by 1.0% in the EU in the fourth quarter of 2015 (after +1.1% and +1.0% respectively in the third quarter of 2015). Among Member States for which data are available, Malta (+1.7%) and Croatia (+0.8%) recorded the highest increases in employment in the fourth quarter of 2015 compared with the previous quarter, followed by Spain, Luxembourg, Poland, Portugal and Sweden (all +0.7%). Estonia (-2.4%), the United Kingdom (-1.0%) and Lithuania (-0.3%) recorded decreases. These quarterly data on employment are seasonally adjusted and provide a picture of labour input consistent with the output and income measure of national accounts.
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Economic growth in Slovakia: Past successes and future challenges. European Economy. Economic Brief 9. 14/3
Between 2000 and 2008 Slovakia grew by almost 6% per year in per capita terms, thus narrowing the economic gap that separated it from more developed Western European countries. The crisis, however, significantly slowed down the convergence process; Slovakia's average GDP per capita growth since 2008 has been only slightly above 1%. This paper analyses the sources of this slowdown and examines the primary challenges to future growth. It shows that labour productivity largely explains both Slovakia’s strong growth before the crisis and its sluggish growth since then. There are, therefore, substantial gains to growth to be achieved by closing the still large labour productivity gap between Slovakia and more developed European economies. The paper argues that a primary challenge for Slovakia it to restart productivity growth in its tradable sector, and to diversify across industries. Raising investment in equipment, given the substantial impact on growth that this type of investment seems to have, could help Slovakia to increase growth and productivity.
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Directorate-General for Economic and Financial Affairs
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