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Brussels European Council, 01-02/03/12 © European Union, 2012 EU leaders endorse Commission's 2012 Annual Growth Survey, re-elect Herman Van Rompuy as President of the European Council
- Fiscal Compact signed, to come into force on 1 January 2013
- EU interim forecast: on the brink of a mild recession
- Eurogroup reaches agreement with Greek government, welcomes common understanding between private sector and Greek authorities
- Portugal review mission concludes programme is on track but challenges remain
- G20 Finance ministerial meeting agrees on a roadmap to increase IMF resources
- Dealing with Hungary’s excessive deficit: Commission proposes to suspend EUR 495 million in EU Cohesion Fund commitments
- Council ready to negotiate second economic governance package with European Parliament
- Council adopts regulation on short selling and credit default swaps
- Commission White Paper sets out plans for adequate, safe and sustainable pensions
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Brussels European Council, 01-02/03/12 © European Union, 2012 EU leaders endorse Commission's 2012 Annual Growth Survey, re-elect Herman Van Rompuy as President of the European Council

The Spring European Council discussed the EU's economic strategy of both continued fiscal consolidation and determined action to boost growth and jobs. EU leaders endorsed the economic policy priorities for 2012 as set out in the European Commission's Annual Growth Survey. Concluding the first half of the European Semester, EU leaders provided policy guidance for the EU and the Member States for the coming year. At the national level, faster progress must be made towards the targets of the Europe 2020 Strategy and efforts must be stepped up to implement the Country-Specific Recommendations that Member States were issued in 2011. At the EU level, growth-enhancing efforts will focus on moving forward the Single Market in all its aspects, reducing the regulatory burden at the EU and national levels and removing trade barriers. Heads of State or Government also discussed foreign policy and a number of upcoming international summits. Mr Herman Van Rompuy was re-elected President of the European Council for the period from 1 June 2012 until 30 November 2014 and invited to chair euro summit meetings.

Viewpoint
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The restoration of confidence in the future of the Eurozone will lead to economic growth and jobs. This is our ultimate objective. The targets on deficits and debts are intermediate targets, no aim in itself.

President of the European Council Herman Van Rompuy
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José Manuel Barroso, Herman Van Rompuy & Uwe Corsepius © European Union, 2012
Fiscal Compact signed, to come into force on 1 January 2013

At their meeting on 2 March, European leaders signed the Treaty on stability, coordination and governance in the Economic and Monetary Union. Also known as the ‘Fiscal Compact’, the treaty was signed by all of the EU's Member States, with the exception of the UK and the Czech Republic. The international treaty strengthens fiscal discipline and will require countries to balance their budgets in structural terms or to run a surplus. The balanced budget rule would be written into each country's laws, preferably its constitution. The treaty is scheduled to come into force on 1 January 2013 provided it has been ratified by at least 12 Member States.

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Report © Istockphoto.com
EU interim forecast: on the brink of a mild recession

According to the latest interim forecast of the European Commission, presented on 23 February, real GDP is expected to stagnate in the EU and to shrink by 0.3% in the euro area in 2012. This constitutes a downward revision of 0.6 percentage points in the EU and 0.8 percentage points in the euro area compared to the autumn forecast of 10 November 2011. Despite the disappointing economic news, modest growth is predicted for both the EU and euro area in the second half of the year. The next spring forecast will be published on 11 May 2012.

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Greek Flag © Istockphoto.com
Eurogroup reaches agreement with Greek government, welcomes common understanding between private sector and Greek authorities

European finance ministers reached agreement with the Greek government on a policy package that forms the basis for future assistance. At their meeting on 21 February, they welcomed approval of the current policy package by the Greek parliament, the identification of additional fiscal savings of EUR 325 million and assurances by the leaders of the two coalition parties regarding the implementation of Greece’s adjustment programme after the forthcoming general elections. The Eurogroup acknowledged the common understanding that has been reached between the Greek authorities and the private sector on the general terms of the PSI exchange offer, covering all private sector bondholders. This common understanding provides for a nominal haircut amounting to 53.5%. The bond exchange was launched on 24 February and will stay open until 8 March. The respective contributions from the private and the official sector should now ensure that Greece's public debt ratio is put on a downward path reaching 120.5% of GDP by 2020.

On this basis, and provided policy conditionality under the programme continues to be met, the Eurogroup confirmed that euro area Member States stand ready to provide additional official programme funding of up to EUR 130 billion until 2014. The funds would be provided through the EFSF with the expectation that the IMF would make a significant contribution. For its part, the Greek government will put in place a mechanism to better monitor official borrowing and the servicing of its debt, and will introduce a legal provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible.

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Portugal review mission concludes programme is on track but challenges remain

Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Lisbon during February 15-27 for the third quarterly review of Portugal’s economic programme. They concluded that the programme is on track, but challenges remain. The large fiscal correction in 2011 and the strong 2012 budget, in particular, have bolstered the credibility of Portugal’s front-loaded fiscal consolidation strategy. Moreover, financial sector reforms and deleveraging efforts are advancing, while structural reforms to increase competitiveness, growth, and jobs have also progressed, although many reforms still await full implementation. Looking ahead, GDP in 2012 is expected to decline by 3.25%, but in 2013 a slow recovery should take hold. Approval of the conclusion of this review will allow the disbursement of €14.9 billion (€9.7 billion by the EU, and €5.2 billion by the IMF).



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G20 © Thinkstock.om
G20 Finance ministerial meeting agrees on a roadmap to increase IMF resources

Vice-President Rehn participated in the G20 meeting on 26 February in Mexico City, during which participants discussed current risks to the global economy and plans to increase the IMF’s resources. There was moderate optimism amongst Ministers on the global economic and financial situation, especially in Europe. There was widespread recognition of the EU's 5-point strategy for euro area crisis response. The G20 also took note of the fact that the euro area would reassess the strength of its financial support facilities in March. This will provide an essential input to the on-going discussions on mobilising resources for the IMF.

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Hungarian Parliament © Getty Images
Dealing with Hungary’s excessive deficit: Commission proposes to suspend EUR 495 million in EU Cohesion Fund commitments

On 22 February, the European Commission proposed to suspend EUR 495 million in EU Cohesion Fund commitments for Hungary, because of the country’s failure to address its excessive government deficit. The measure would take effect on 1 January 2013 and represent 0.5% of the country’s GDP and 29% of its cohesion fund allocations for 2013. This step follows the failure by Hungary to take appropriate action despite repeated warnings by the Commission. Olli Rehn, European Commission Vice-President and Commissioner for Economic and Monetary Affairs and the Euro, emphasized that the decision should be regarded as “an incentive to correct a deviation, not as a punishment. It is a fair and proportionate measure of a preventive nature,” he said. Hungary has until 1 January 2013 to bring its deficit back on track and avoid the suspension of funds.


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Road with arrow © European Union, 2012
Council ready to negotiate second economic governance package with European Parliament

Meeting on 21 February, the Economic and Financial Affairs Council (ECOFIN) agreed on its general approach for negotiating with the European Parliament regarding the Commission's second package of proposals to further strengthen budgetary surveillance in the euro area. The package contains two proposals. The first is for a regulation that would enhance the monitoring and assessment of the draft budgetary plans of euro area Member States, especially those subject to an excessive deficit procedure. The second proposal is for a regulation on enhanced surveillance of euro area Member States that are experiencing severe financial distress or request financial assistance. The Council presidency will now negotiate with the Parliament on this basis. This second package of proposals builds on the so-called ‘Six Pack’ of legislative measures on EU economic governance that entered into force on 13 December 2011.


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Risk management © Istockphoto.com
Council adopts regulation on short selling and credit default swaps

The Council adopted a regulation on short selling and certain aspects of credit default swaps during its regular meeting on 21 February. The regulation introduces common EU transparency requirements and harmonises the powers that regulators may use when there is a serious threat to financial stability. At the height of the financial crisis in 2008, several Member States adopted emergency measures to restrict or ban short selling. The measures were intended to counter a downward spiral in the prices of shares that could create systemic risks. As the EU lacked a common regulatory framework for dealing with short selling, however, Member States adopted divergent measures. The new regulation will end the practice of regulatory arbitrage, in which investors exploit differences between regulatory systems, and it will prevent confusion and the imposition of additional costs on market participants.


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Active retirement © European Union, 2012
Commission White Paper sets out plans for adequate, safe and sustainable pensions

The European Commission published a White Paper on adequate, safe and sustainable pensions on 16 February. The paper, “An agenda for adequate, safe and sustainable pensions”, looks at how the EU and the Member States can work to tackle the major challenges that confront pension systems. It proposes a range of initiatives to help create a better balance between time in work and time in retirement; to ensure people who move to another country can keep their pension rights; to help people save more and ensure that pension promises are kept; and to ensure that people get what they expect in retirement. Coinciding with the 2012 European Year for Active Ageing and Solidarity between Generations, the White Paper builds on the results of a wide consultation, launched in July 2010.


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Publications
Scoreboard for the surveillance of macroeconomic imbalances ©European Union, 2012

Corporate balance sheet adjustment: stylized facts, causes and consequences, Economic Paper 449

This paper examines corporate balance sheet adjustment episodes, periods during which major increases in non-financial corporations’ net lending or borrowing occurred. An analysis of such episodes in Germany and Japan, and a more systematic exploration of a sample of 30 countries, shows that corporate balance sheet adjustment tends to be long lasting and have a major impact on current accounts, wages and investment. Adjustment is typically achieved by reducing investment and through cost-cutting measures. According to the paper, balance sheet adjustment is triggered by macroeconomic downturns as well as balance sheet stress due to high debt, low liquidity and negative equity price shocks.


Tax avoidance and fiscal limits: Laffer curves in an economy with informal sector, Economic Paper 448
Economic Adjustment Programme for Ireland — Winter 2011 Review,
Occasional Paper 93
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BEF 2012 – The Brussels Economic Forum 2012
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