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European Commission Economic and Financial Affairs
E-NEWS - Issue 138
In this issue - 19 May 2016

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Top story
Spring 2016 European Semester package: Commission sees progress with reforms but also need to consolidate Europe's recovery

On 18 May, the European Commission published its 2016 country-specific recommendations (CSRs), setting out its economic policy guidance for individual Member States for the next 12 to 18 months. In addition to efforts already identified and on going at the Euro area level, this guidance focuses on priority reforms to strengthen the recovery of Member States’ economies by boosting investment, implementing structural reforms and pursuing fiscal responsibility. The Commission’s analysis finds that investment is still low compared to pre-crisis levels but is gaining traction, also helped by the Investment Plan for Europe. Faster progress on structural reforms is necessary, however, to boost the recovery and raise the long-term growth potential of EU economies. Moreover, all Member States need to pursue responsible fiscal policies and ensure that their budgets are growth-friendly. This year’s CSRs reflect the Commission’s efforts to make the European Semester more effective and relevant by proposing fewer recommendations with a focus on key economic and social priorities identified in its Annual Growth Survey 2016, by strengthening national ownership, and by adding a greater focus on euro area challenges and the interdependence between economies.

See also : European Semester 2016
Valdis Dombrovskis, Vice-President responsible for the Euro and Social Dialogue

"Today's economic package places major emphasis on the structural reforms needed to strengthen the EU's economic recovery, reduce obstacles to growth and boost employment."

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue
More News
Excessive deficit procedure closed for Cyprus, Ireland and Slovenia

The Commission took several steps under the Stability and Growth Pact (SGP) on 18 May. First, the Commission recommended to the Council that it close the Excessive Deficit Procedure (EDP) for Cyprus, Ireland and Slovenia as these countries have brought their deficits below the 3% of GDP Treaty reference value in 2015 and each country’s correction is expected to be durable. For Cyprus, this would mean an exit one year ahead of its 2016 deadline. If the Council agrees, this would reduce the total number of Member States in EDP to six (Croatia, France, Greece, Portugal, Spain and UK), down from 24 in spring 2011. Second, the Commission adopted reports for Belgium , Italy  and Finland , in which it reviewed their compliance with the debt criterion of the Treaty. While these countries appear to be at variance with the treaty’s debt reference value, as well as the benchmark pace of reduction towards it, the reports suggest that the SGP should be considered as currently complied with. Regarding Portugal  and Spain, the Commission recommendation to the Council contained in the CSRs was to recommend a durable correction of the excessive deficit in 2016 and 2017, by taking the necessary structural measures and by using all windfall gains for deficit and debt reduction. The Commission will come back to the situation of these two Member States in early July.

See also : The corrective arm
Eurogroup welcomes Greece’s policy package as progress is made towards concluding first review

During an extra Eurogroup session on 9 May, euro area finance ministers welcomed the agreement reached on Greece’s policy package, thus clearing the way for the successful completion of the first review of Greece’s programme under the European Stability Mechanism (ESM). The core of the package is a set of measures that will amount to 3% of GDP by 2018. They include pension reform, personal income tax reform and additional fiscal parametric measures. Some of these reforms have already been legislated by the Greek parliament. In addition, a contingency mechanism will be established that will automatically trigger a package of measures, including permanent structural measures in the following year, if Greece fails to meet its annual primary surplus targets. The first review also examines implementation of the non-performing loan strategy and the privatisation programme. The Supervisory Board of the Greek Privatisation and Investment Fund will be appointed by June 2016, and the fund will become fully operational no later than September. Finance ministers also discussed Greece’s debt, agreeing on guiding principles and that the Euro Working Group will design and establish a benchmark to ensure that Greece's gross financing needs remain on a sustainable path.

See also : Financial assistance to Greece
First EFSI-backed deals signed in Greece

On 10 May, the European Investment Fund (EIF) signed three deals with Greek intermediary banks and funds to provide EUR 150 million of additional investment to very small, small and medium-sized companies (SMEs) in Greece. The deals are all backed by the European Fund for Strategic Investments (EFSI) and supported by EU programmes, and include the first EFSI deal to be signed in Greece. In addition to these deals, on 10 May, the European Investment Bank (EIB) signed a EUR 15 million financing agreement with Creta Farms SA, the first EIB transaction in Greece to benefit from EFSI support. Meanwhile, on 13 May the EIB signed a EUR 50 million loan with Instituto de Crédito Oficial (ICO), the first such EFSI-supported deal with a national promotional bank in Spain, that will enable ICO to invest EUR 250 million in infrastructure projects. The EIB has also committed EFSI-supported financing of EUR 30 million to finance urban regeneration at several sites in France and Belgium. As of 12 April 2016, the EIB Group – the European Investment Bank and the European Investment Fund – had approved EUR 11 billion of new financing backed by EFSI guarantees from the EU budget. This financing is expected to trigger total investment worth more than EUR 82 billion, or approximately 26% of the final target of EUR 315 billion.

See also : Investment Plan
Annual inflation down to -0.2% in both euro area and EU

Euro area annual inflation was -0.2% in April 2016, down from 0.0% in March. In April 2015 the rate was 0.0%. EU annual inflation was also -0.2% in April 2016, down from 0.0% in March. A year earlier the rate was 0.0%. These figures come from Eurostat, the statistical office of the EU. In April 2016, negative annual rates were observed in seventeen Member States. The lowest annual rates were registered in Romania (-2.6%), Bulgaria (-2.5%) and Cyprus (-2.1%). The highest annual rates were recorded in Belgium (1.5%) and Sweden (1.0%). Compared with March 2016, annual inflation fell in thirteen Member States, remained stable in seven and rose in eight. The largest upward impacts to euro area annual inflation came from restaurants & cafés (+0.13 percentage points), rents (+0.08 pp) and tobacco (+0.05 pp), while fuels for transport (-0.54 pp), heating oil (-0.22 pp) and gas (-0.13 pp) had the biggest downward impacts.

See also : eurostat press release
Fiscal consolidation in Ireland: Recent successes and remaining challenges. European Economy. Economic Briefs 10.
Fiscal consolidation in Ireland: Recent successes and remaining challenges. European Economy. Economic Briefs 11.
A look at the success of Ireland’s recent fiscal consolidation efforts and remaining fiscal policy challenges.
Local State-Owned Enterprises in Italy: Inefficiencies and Ways Forward. European Economy. Economic Briefs 10.
Local State-Owned Enterprises in Italy: Inefficiencies and Ways Forward. European Economy. Economic Briefs 10.
Italy’s productivity conundrum. A study on resource misallocation in Italy. European Economy. Discussion Paper 30.
Italy’s productivity conundrum. A study on resource misallocation in Italy. European Economy. Discussion Paper 30.
Graph of the Week
European Semester - Situation May 2016
Selected Speeches
18 May 2016
Vice-President Dombrovskis. Remarks on the Spring 2016 European Semester package. Speech 16/ 1745 of 18 May.
17 May 2016
Commissioner Hill. A review of the EU regulatory framework for financial services. Speech 18/1788 of 17 May.
19 May 2016
Feedback. Blueprint of the EU Customs Union governance reform.

G7 Finance Ministers meeting, Sendai, Japan, 20-21 May

Eurogroup/ECFOFIN meetings, Brussels, 24-25 May

G7 Summit, Shima, Japan, 26-27 May

ECB Governing Council meeting, Vienna, Austria, 2 June

European Parliament Plenary, Strasbourg, 6-9 June

Eurogroup/ECFOFIN meetings, Brussels, 16-17 June

G20 Finance Deputies and Ministers meeting, Xiamen, China, 22-23 June

European Council, Brussels, 23-24 June

European Parliament Plenary, Strasbourg, 4-7 July

Eurogroup/ECFOFIN meetings, Brussels, 11-12 July

ECB Governing Council meeting Frankfurt, Germany, 21 July

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