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Latvia achieves smooth euro changeover to become 18th euro area country
Latvia became the eighteenth euro area country when it changed over to the euro on 1 January 2014. Latvia's changeover proceeded smoothly and successfully and was monitored at regular intervals in a Commission Flash Eurobarometer survey until dual circulation ended on 14 January. On that day, more than nine out of ten cash payments in shops were made in euro only and all customers received their change in euro, which shows that the Latvian retail sector was properly supplied with euro cash. Nearly three out of four citizens polled were only carrying euro banknotes and coins in their wallets. Banks, post offices and retailers were reported to be coping well with the changeover process and parallel handling of two currencies. No major problems regarding queues or problems at the tills were reported. Following their celebration on New Year's eve at midnight, Latvians also celebrated the country’s accession to the euro at a ceremony held in Riga on 10 January which was attended by Commission President Manuel Barroso, Herman Van Rompuy, President of the European Council, Valdis Drombrovskis, Latvian Prime Minister, and Commission Vice-President Olli Rehn.
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| Latvia's euro adoption has been the result of hard work under difficult circumstances. Its experience holds important lessons for countries that still face significant challenges. |
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Olli Rehn, Vice-President for Economic and Monetary Affairs and the Euro
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President Barroso welcomes priorities of Greece’s EU presidency
Greece formally launched its EU presidency with a ceremony in Athens on 8 January. The keynote address was delivered by Prime Minister Antonis Samaras, while Deputy Prime Minister and Foreign Minister Evangelos Venizelos, the President of the European Council, Herman van Rompuy, and European Commission President Barroso also spoke at the event. Barroso said that the European economy has started to turn the corner but added that the recovery needs to be firmed up, particularly by boosting investment and improving access to finance for SMEs. He welcomed Greece’s focus on these challenges. Barroso also underscored the importance of adoption by Member States of the Single Resolution Mechanism (SRM), a key component of the European Banking Union, and called for additional work on deepening Economic and Monetary Union (EMU). He praised the Greek presidency for prioritising agreements to boost trade and the single market, as well as its focus on an ambitious energy and climate change framework, on improving the framework for human mobility and on promoting maritime issues. President Barroso repeated similar themes in a speech before the European Parliament on 15 January, and praised Greece for already achieving impressive results with its adjustment programme, including a government deficit that has gone from deficit to surplus in four years, recovering competitiveness, and a comprehensive programme of structural and public sector reforms.
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European Council, Parliament and Commission begin trilogue negotiations on Single Resolution Mechanism and Fund
Trilogue negotiations on the next stage of Banking Union started between the European Parliament, the European Council and the European Commission on 8 January. The negotiations concern the Single Resolution Mechanism (SRM), which will establish a centralised system for tackling in an orderly manner banks that are failing or likely to fail, and the Single Resolution Fund (SRF), a single fund that will provide the financing needed for such operations. The start of negotiations follows approval of the general approach by the European Council at its meeting on 19-20 December 2013. At the meeting, the European Council called on legislators to adopt the SRM before the end of the current legislative period in May 2014. Also in December, the European Council and the European Parliament reached agreement on the Deposit Guarantee Scheme Directive and the Bank Recovery and Resolution Directive. The two pieces of legislation provide for a single set of harmonised standards, tools and powers applicable across all 28 EU Member States. They form the basis upon which the SRM will function, ensuring that the problems of banks failing or likely to fail can be managed in a predictable and efficient way with minimal recourse to public money.
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European Council agrees on way forward for Partnerships for Growth, Jobs and Competitiveness
At their meeting on 19-20 December 2013, European leaders agreed in principle on the way forward regarding Partnerships for Growth, Jobs and Competitiveness. Based on the Commission proposal of 20 March 2013 for a Convergence and Competitiveness Instrument (CCI), the partnerships are intended to increase the level of commitment, ownership and implementation of economic policies and reforms in the euro area Member States, while maintaining strong democratic legitimacy and accountability at the level at which decisions are taken and implemented. Partnerships would be based on a system of mutually agreed contractual arrangements and associated solidarity mechanisms. Contractual arrangements would cover a broad range of growth and job-enhancing policies and measures. The idea would be to facilitate and support sound policies before countries face severe economic difficulties. This system would be embedded in the European Semester, open to non-euro area Member States and fully compatible with the Single Market. It would apply to all euro area Member States except for the Member States subject to a macroeconomic adjustment programme. European leaders invited the Council and the Commission to carry the work forward and to report to the October 2014 European Council with a view to reaching an overall agreement on both of these elements.
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ECB officially unveils new €10 banknote
The Eurosystem – the European Central Bank (ECB) and the national central banks (NCBs) of the euro area – unveiled a new Europa series €10 banknote on 13 January 2014 and will issue the note on 23 September. The new €10 banknote follows the €5 banknote which entered into circulation on 2 May 2013. It will be easily recognisable as its design is similar to the €10 of the first series. The new Europa series notes, however, have several new and enhanced security features to make them even more resistant to counterfeiting. They include a portrait of Europa – a figure from Greek mythology and the origin of the name of the European continent – in the hologram and the watermark. The Europa series notes are also more durable as they have a protective coating. To support introduction of the new banknotes, a Eurosystem Partnership Programme has been set up for banknote equipment manufacturers and suppliers as well as clients and users of banknote handling machines and authentication devices.
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Rehn to European Parliament: Troika functions reasonably well and should continue its work
Commission Vice-President Rehn appeared before the European Parliament (EP) Committee on Economic and Monetary Affairs on 13 January to answer questions regarding the work of the ‘Troika’ of international lenders – the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF). The three institutions have jointly administered macroeconomic adjustment programmes for the euro area Member States Greece, Ireland, Portugal and Cyprus as well as a financial sector assistance programme for Spain. The discussion was based on written replies to a questionnaire that the Commission submitted to the Parliament on 16 December 2013. Rehn emphasised that the macroeconomic adjustment programmes “prevented disorderly defaults with all the devastating economic and social consequences that would have entailed”. As for accountability and transparency, Rehn noted that the role of the Troika has been formalised in the ESM Treaty and in the two-pack, and that the beneficiary country is accountable to its national parliament. The Troika functions reasonably well and should continue its work for the foreseeable future, according to Rehn. Upon completion of hearings with former ECB President Trichet and ESM Director Regling and after visits to programme countries and other meetings, the EP will adopt a Troika evaluation report in April.
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Eurobarometer survey: Europeans becoming slightly more optimistic about economic situation
According to results from the Standard Eurobarometer survey of European public opinion conducted in autumn 2013, over half of Europeans (51%) say that they are optimistic about the EU’s future. This represents an increase of two percentage points compared to spring 2013. Overall, 43% of citizens believe that the EU is heading in the right direction to emerge from the crisis and face new global challenges. Challenges remain, however. Forty-nine percent of Europeans rank unemployment as the greatest economic challenge facing the EU followed by the economic situation in general, inflation and government debt. As Ireland exits its adjustment programme, the number of Irish people saying that they expect the national economic situation to improve in the next year has risen by 12 percentage points, and the number of Irish citizens assessing the state of their national economy as “good” has increased by 11 percentage points. Support for the euro and Economic and Monetary Union in the 28 EU countries has remained stable, with more than half of Europeans in favour (52%), an increase of 1% since spring 2013.
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Commission adopts new guidelines on state aid to promote risk capital investments in SMEs and midcaps
On 15 January, the European Commission adopted new guidelines setting out the conditions under which Member States can grant aid to facilitate access to finance by European SMEs and companies with a medium capitalization (so-called “midcaps”). Certain SMEs and midcaps, in particular innovative and growth-oriented SMEs in the early stages of development, have difficulties getting funding, irrespective of their business potential. State aid can help address this funding gap, not by replacing existing funding channels but by attracting fresh money into new ventures through well-designed financial instruments and fiscal measures. These guidelines are part of the Commission’s State Aid Modernisation (SAM) strategy, which aims to foster growth in the Single Market by encouraging more effective aid measures and by focusing the Commission’s enforcement of rules on cases with the biggest impact on competition. The guidelines will enter into force on 1 July 2014.
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EU Council appoints Danièle Nouy chair of Supervisory Board of the Single Supervisory Mechanism
The EU Council appointed Danièle Nouy on 16 December as Chair of the Supervisory Board of the Single Supervisory Mechanism (SSM) at the European Central Bank (ECB). The SSM will bring some 130 of the EU’s largest banks under direct oversight by the ECB from September 2014. While all other credit institutions in the participating countries will continue to be supervised by the competent national authorities, the ECB can decide at any time to exercise direct supervision of any one of these credit institutions to ensure consistent application of high supervisory standards. The European Parliament had previously approved the ECB Governing Council’s proposal to appoint Ms. Nouy. Until recently, Mrs. Nouy was Secretary General of the French Prudential Supervision and Resolution Authority (Autorité de Contrôle Prudentiel et de Résolution). Prior to that she held the positions of Deputy Secretary General and Secretary General of the Basel Committee on Banking Supervision. Mrs. Nouy began her five-year term of office on 1 January 2014.
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Quarterly report on the euro area, Volume 12 (2013) Issue 4. December 2013
This edition of the Quarterly report sheds some light on the euro area’s medium term growth picture. Chapter 1 presents growth projections for the coming decade and concludes that, if current policies remain unchanged, GDP growth is likely to be significantly lower than in the decade before the economic and financial crisis. Chapter 2 provides a quantitative assessment of the potential macroeconomic effects of structural reforms. It shows that comprehensive structural reforms would not only yield large gains in output and employment, but also contribute to debt sustainability. Chapter 3 takes a closer look at the investment decisions of firms in the tradable sector in vulnerable Member States. The analysis indicates that tight credit supply conditions may play an important role in explaining the currently low level of investment in these countries. Finally, Chapter 4 provides evidence on the responsiveness of investment to corporate tax incentives. It concludes that taxation may not only affect the level of investment but also its composition.
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| Directorate-General for Economic and Financial Affairs |
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