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Commission assesses Draft Budgetary Plans; notes progress and further needs in its 2014 Alert Mechanism Report
Taking a big step forward in implementing the new EU governance rules and for the first time ever, on 15 November the Commission issued opinions on the draft budgetary plans of the 13 euro area Member States not undergoing an economic adjustment programme and assessed the Economic Partnership Programmes of five euro area countries. These actions implement the new Two-Pack rules that entered into force this year as part of the strengthened EU economic governance. The opinions on draft budgetary plans signal whether the drafts are in line with EU obligations and also allow for an assessment of the budgetary situation of the euro area as a whole. This exercise complements the release of the 2014 Alert Mechanism Report (AMR) on 13 November. The AMR launched the next annual cycle of the Macroeconomic Imbalances Procedure. It provides an objective analysis of Member States’ economies based on a scoreboard of indicators that measure internal and external competitiveness. This year’s AMR found that several Member States are making progress in reducing their current account deficits and reversing losses in competitiveness but also showed that further progress is needed. In addition, high current account surpluses persist in some countries, suggesting potentially inefficient levels of saving and investment and the need to strengthen domestic demand. The AMR recommends in-depth reviews of economic developments in 16 Member States, all of which face different challenges and risks that could spill over to the rest of the euro area and wider EU. These reviews aim to assess whether imbalances exist and whether previously identified imbalances persist or are being unwound.
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| We have reached a turning point on the road to economic recovery and […] a milestone in the implementation of Europe's strengthened economic governance. |
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Olli Rehn, Commission Vice-President responsible for Economic and Monetary Affairs and the Euro
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Commission assesses excessive deficit situation and potential breaches of debt and deficit criteria
As part of its major package of budgetary surveillance presented on 15 November, the Commission assessed effective action in compliance with Council recommendations under the Excessive Deficit Procedure (EDP) for seven Member States (Belgium, Spain, France, Malta, the Netherlands, Poland and Slovenia). In addition, the Commission analysed reasons for an actual or forecast breach of either the debt or deficit criteria under the Stability and Growth Pact (SGP) in three countries. It concluded that Croatia complies with neither of the two criteria, Lithuania complies with both, and that the risk that Finland will not comply with the debt criterion due to low growth and other factors does not merit the launch of an EDP. The proposals for EDP Recommendations will be presented to the ECOFIN Council for discussion on 10 December.
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Sustaining recovery identified as greatest challenge as 2014 Annual Growth survey kicks off European semester
The biggest challenge currently facing Europe’s economy is how to sustain the recovery that is now underway. This is the main message of the 2014 Annual Growth Survey (AGS), adopted on 13 November by the Commission. Adoption of the AGS kicks off the fourth European Semester of economic policy coordination. According to the AGS, growth is beginning to return and Member States are making progress in correcting the imbalances that developed before the crisis. Moreover, the draft Joint Employment Report annexed to the AGS notes encouraging signs that unemployment has stopped rising, and that Member States have made progress over the past year on labour market reforms. Unemployment remains unacceptably high, however, especially youth and long-term unemployment, and according to data presented in a new scoreboard of employment and social indicators included in the report for the first time, persistent divergences in unemployment, youth unemployment, household income, inequality and poverty rates have built up across Member States, particularly within the euro area.
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Rehn acknowledges Ireland's impressive progress and supports decision to exit programme; final review mission finds Ireland on track
On 14 November, Vice President Rehn expressed the Commission's support for the Irish government decision to exit the adjustment programme in December as planned and without a pre-arranged precautionary credit facility. While noting that challenges remain, Rehn acknowledged Ireland's impressive progress and good prospects for a successful and durable programme exit. From 29 October-7 November, staff teams from the European Commission (EC), European Central Bank (ECB), and the International Monetary Fund (IMF) had visited Dublin for the twelfth and final review of the government's economic adjustment programme. Ireland's programme remains on track in the context of the nascent economic recovery. The country’s economy has been growing above the euro area average since 2011, and growth prospects are strengthening after weakness in the earlier part of this year. Discussions with the authorities focused on the conclusion of the programme and the remaining challenges. Ireland needs to broaden its revenue base, reform the health sector, and target social supports toward the most vulnerable, in order to achieve further fiscal consolidation in a durable and growth-friendly manner. Conclusion of this review by both the EU and the IMF would make available disbursements of EUR 0.8 billion by the European Financial Stabilisation Mechanism (EFSM) and EUR 0.6 billion by the IMF. This would complete the disbursements under the programme.
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Fourth Post-Programme Surveillance mission to Latvia delivers positive assessment
The fourth Post-Programme Surveillance (PPS) mission to Latvia has delivered an overall positive assessment of post-programme developments. The PPS mission was carried out by the European Commission services from 4-7 November, together with the European Central Bank, and follows the successful conclusion on 20 January 2012 of the three-year financial support programme administered by the EU. Macroeconomic, fiscal and political stability have allowed Latvia to enjoy among the fastest GDP growth rates in the EU and the outlook for 2014 and 2015 is equally encouraging. Nonetheless, faster progress needs to be made in implementing reforms to address youth unemployment, higher education and science, the better targeting of social benefits, the improved management of state-owned enterprises, and with regard to the liberalisation of the gas and electricity markets. PPS missions are scheduled to take place twice a year until 75% of the EU loan provided to Latvia is repaid (expected in 2015).
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Eurogroup supports Spain's decision not to request ESM financial assistance following 2014 programme exit
On 14 November, Euro area finance ministers congratulated Spain on the successful implementation of its financial sector programme and the reform steps undertaken thus far. While ministers are looking forward to the completion of the fifth and final review that is expected to confirm this positive assessment, they expressed their full support for Spain's decision not to request any successor European Stability Mechanism (ESM) financial assistance following the country’s programme exit in January 2014. Ministers urged Spain to build upon its success in dealing with financial sector vulnerabilities and its progress in budgetary consolidation and macroeconomic imbalances, by continuing to rigorously address remaining challenges such as the high unemployment rate. The Eurogroup also commended the Spanish people for their efforts and achievements under difficult circumstances.
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Review mission completed; Cyprus economic programme on track but economic outlook remains subdued
Staff teams from the European Commission (EC), European Central Bank (ECB), and the International Monetary Fund (IMF) visited Nicosia from 29 October-7 November for the second quarterly review of Cyprus’s economic programme, which is supported by financial assistance from the European Stability Mechanism (ESM) and the IMF. The mission found that Cyprus’s programme is on track. All fiscal targets have been met by wide margins, and structural reforms are also advancing. Furthermore, significant progress has been made since the last review toward recapitalising and restructuring of the financial sector. The economic situation remains difficult, however. Output is projected to contract by about 7.7 per cent in 2013, by 4.8 per cent in 2014, and to recover only gradually starting in 2015. Conclusion of this review by the Eurogroup, the European Stability Mechanism (ESM) and the IMF would pave the way for the disbursement of EUR 100 million by the ESM, and about EUR 86 million by the IMF.
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Romanian economic programme broadly on track but hampered by subdued domestic demand
Teams from the International Monetary Fund and the European Commission visited Bucharest from 22 October-5 November to conduct discussions on the first review of the country’s economic programme. The programme is supported by an IMF Stand-By Agreement and a precautionary EU balance of payments programme. The joint mission concluded that Romania’s programme remains broadly on track. All performance criteria were met by the end of September 2013 as planned, and progress was made toward meeting most of the structural benchmarks. Real GDP growth in 2013 has strengthened on the back of strong agricultural output and robust export performance, and is now projected to reach 2.2%. Domestic demand, however, remains subdued, and real GDP growth in 2014 is forecast to remain flat at 2.2%.
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ECB to lower two key interest rates to record lows
On 7 November, the European Central Bank (ECB) decided to lower two key interest rates to their lowest levels since creation of the euro. The interest rate on the main refinancing operations of the Eurosystem is lowered by 25 basis points to 0.25% and the interest rate on the marginal lending facility by 25 basis points to 0.75%. The rate on the deposit facility remains unchanged at 0.00%. Based on a subdued outlook for inflation extending into the medium term, and given the broad-based weakness of the economy and subdued monetary dynamics, the ECB expects the key interest rates to remain at present or lower levels for an extended period of time.
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Latest Eurobarometer survey confirms positive trend in citizens’ overall appreciation of the euro for their own country
Euro area citizens continue to view the euro positively for their own country, according to the most recent Eurobarometer survey. The economic and financial crisis notwithstanding, respondents’ positive overall assessment of the euro continues the trend of recent years, and has reached its second highest level since introduction of the survey in 2002. For the survey, which was carried out in early October 2013, some 15,000 respondents across the 17 euro area countries were interviewed by phone. While a clear majority sees the euro as good for the EU as a whole, there are important differences across the 17 countries. Nonetheless, a majority of respondents in all countries think that there should be more economic policy coordination, including of budgetary policies, and there is broad agreement on labour market reforms and that governments need to save more today in order to prepare public finances for the ageing of populations. A large majority of respondents (71%), however, are strongly opposed to increasing the retirement age.
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Permanent euro coin exhibition opens in Brussels
Over the past several years, citizens have read and heard a lot concerning the reform of EU economic governance as well as the strengthened framework for the euro as a common currency. Now, when in Brussels, they can also learn about the currency itself. On 8 November, the Directorate-General for Economic and Financial Affairs (DG ECFIN) inaugurated a permanent euro coin exhibition in the Charlemagne building. Located in Brussels next to the Commission's headquarters in the Berlaymont building, the exhibition displays all regular and commemorative euro coins issued by euro area Member States since the first issuance of euro coins in 2002, together with all euro coins issued by third countries that have signed Monetary Agreements with the EU (Andorra, Monaco, San Marino and the Vatican City). This exhibition offers an interesting opportunity for visitors to the Commission to take a close look at various national designs of euro coins and the history of the euro.
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The gap between public and private wages: new evidence for the EU. European Economy. Economic Papers. 508. November 2013. Brussels.
This paper aims to assess the size of the wage gap between the public and private sectors within all EU countries by using the European Structure of Earnings Survey (SES) compiled by Eurostat for the years 2006 and 2010. Public sector employees were found to enjoy higher wages on average than comparable workers in the private sector in 2010, even after controlling for the level of educational attainment. Regarding gender, the authors did not find evidence of a wage gap for women. Moreover, on average, the public-private wage gap is higher for older workers and workers with lower levels of education. Finally, workers in higher positions in the private sector were found to earn more than their public sector counterparts – wage premia were reversed in this case. The positive and sometimes large overall public wage differentials are thus mainly explained by the sizeable gaps observed for lower job positions.
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| Directorate-General for Economic and Financial Affairs |
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