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Economic policy surveillance in the European Union The Annual Growth Survey 2015 and the Alert Mechanism Report 2015 Servaas DEROOSE Deputy Director-General.

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Presentation on theme: "Economic policy surveillance in the European Union The Annual Growth Survey 2015 and the Alert Mechanism Report 2015 Servaas DEROOSE Deputy Director-General."— Presentation transcript:

1 Economic policy surveillance in the European Union The Annual Growth Survey 2015 and the Alert Mechanism Report 2015 Servaas DEROOSE Deputy Director-General European Commission, DG Economic and Financial Affairs Conference "European Semester: Presentation of the New 2015 Cycle" Zagreb, 10 December 2014

2 Autumn forecast Winter forecast Spring forecast 15 October In-Depth Reviews May/JuneNovember Annual Growth Survey 15 April Stability/Convergence Programmes National Reform Programmes Country-Specific Recommendations Alert Mechanism Report The European Surveillance Cycle Commission's opinions on Draft Budgetary Plans Euro-area Member States: Draft Budgetary Plans 2

3 The 2015 Annual Growth Survey: A new momentum for jobs, growth and investment 3 INVESTMENT FISCAL RESPONSIBILITY STRUCTURAL REFORMS

4 The investment gap in the EU is sizeable 4 3,039 2,527 2,543 2,528 2,567 2,640 2,717 3,021 2,657 2,714 2,659 2, Gap compared to sustainable trend 2,869 "Sustainable" trend of investment assuming a share in GDP of 21-22% 2,416 2,606 Real gross fixed capital formation EU-28, in 2013 prices, EUR bn Source: European Commission

5 Croatia's investment outlook remains unfavourable 5 Nominal investment (GFCF, % of GDP) Real growth and contributions between 2008 and 2013, Croatia (%) Source: European Commission

6 The Juncker Commission's "Investment Plan for Europe" 6  Strong boost to strategic investments  Better access to investment finance for SMEs and mid-cap companies  Strategic use of EU budget  Flexibility in the Pact for Member States contributing to the new Fund  Better use of the European Structural and Investment Funds MOBILISING FINANCE FOR INVESTMENT  Project pipeline preparation and selection  Technical assistance at all levels  Strong cooperation between National Promotional Banks and the EIB  Follow-up at global, EU, national and regional level, including outreach activities MAKING FINANCE REACH THE REAL ECONOMY  Predictability and quality of regulation  Quality of national expenditure, tax systems and public administration  New sources of long-term financing for the economy  Removing non-financial, regulatory barriers in key sectors within our single market IMPROVED INVESTMENT ENVIRONMENT

7 The new European Fund for Strategic Investments (EFSI) 7 EU guarantee EUR 16 bn * EU guarantee EUR 16 bn * EUR 16 bn x 15 Long-term investments circa EUR 240 bn SMEs and mid-cap firms circa EUR 75 bn EUR 5 bn European Fund for Strategic Investments EUR 21 bn (initially) Total extra over : circa EUR 315 bn** EUR 5 bn Possible other public and private contributions * 50% guarantee = EUR 8 bn from Connecting Europe Facility (3.3), Horizon 2020 (2.7) and budget margin (2) ** Net of the initial EU contributions used as guarantee: EUR 307 bn

8 Renewed commitment to complementary structural reforms in the EU 8  Making the Single Market in goods & services a priority  The Digital Single Market: essential for jobs, growth and innovation  A resilient Energy Union with a forward-looking climate change policy  Ensuring an EU regulatory framework supportive of jobs, growth & investment AT EU LEVEL AT MEMBER STATE LEVEL  Improving labour market dynamics  Pursuing pension reforms  Modernising social protection  Improving the flexibility of product & services markets  Creating better conditions for business investment  Strengthening the quality of R&D investment  Boosting the efficiency of public administration

9 GermanyFranceCroatia Tax and SSC reduction for low- wage earners Cost-effectiveness of renewable energy Competition in services & railway markets EU-wide public procurement Retail business restrictions Labour cost reduction Labour market rigidity, ALMP & vocational training Efficiency of innovation Professional services & business restrictions Competition in network industries Governance of state-owned enterprises Efficiency of public administration & EU funds Educational outcomes Employment of young & old, labour market & wage setting Property tax base, tax expenditure & compliance Portfolio screening of banks ItalySpainIreland Efficiency of public administration Labour market and wage setting Youth employment & vocational training Tax shift and compliance Competition & regulatory framework Banking sector resilience & access to finance Labour market segmentation & ALMP Youth employment & vocational training Market unity & professional services Efficiency of public administration Savings banks & access to finance Bank restructuring, NPLs & access to finance Long-term & youth unemployment, skill mismatches Labour taxes, tax base on property, consumption & environment Financial management in healthcare Country-specific recommendations reflect structural reform priorities 9

10 Source: European Commission Synthetic indicator of progress on implementation of 2012 and 2013 CSRs (100 = full implementation score) The implementation of the CSRs has been mixed so far 10

11 Fiscal responsibility remains key as government debt is high and fiscal adjustment needs are large S1 indicator: required fiscal adjustment by 2020 to reach a 60% debt-to-GDP ratio in 2030 Government debt (% of GDP) Structural balance and medium-term objectives, 2014 (% of GDP) 11 Source: European Commission

12 Alert Mechanism Report (AMR) (Scoreboard and thresholds) November 2014 Programme countries their own enhanced surveillance No problem Procedure stops In-Depth Reviews (IDRs) Commission prepares in-depth country reviews, using a wide set of indicators and analytical tools March 2015 No problem Procedure stops Imbalances Recommendations integrated under European Semester May 2015 Excessive imbalances Recommendations and Specific Monitoring or Corrective Action Plan May 2015 and continuous monitoring 12 The Macroeconomic Imbalances Procedure (MIP) at a glance

13 The scope of the AMR's scoreboard + auxiliary indicators and auxiliary social indicators (no thresholds) 13  External positions: current accounts, net international investment positions  Competitiveness developments : real effective exchange rates, unit labour costs  Export performance: export market shares  Private sector indebtedness: credit, debt  Public sector indebtedness  Assets markets: housing  Financial sector developments: financial sector liabilities  Unemployment EXTERNAL IMBALANCES INTERNAL IMBALANCES

14 14 16 Member States will be analysed in-depth

15 15 AMR points to large external liabilities and worsening export market shares in Croatia Source: European Commission. Note: 2015 estimated using net lending/borrowing forecasts. DK, BG, HR and EU28 follow ESA95. PL: break in series in Net International Investment Positions, 2008, 2013 and 2015 (projection), non-EA countries, % of GDP Export market shares, employment and GDP growth, , Croatia Source: European Commission

16 Luxembourg Malta Denmark Belgium Bulgaria Finland Germany Netherlands Sweden United Kingdom France Hungary Ireland Spain Croatia Italy Slovenia Cyprus Greece Romania IDR concludes no imbalance IDR concludes the presence of an imbalance IDR concludes the presence of (very) serious imbalance and that imbalances requiring decisive policy action or specific monitoring IDR concludes an excessive imbalance programme (not subject to MIP) 16 Macro imbalances evolve over time

17 The 2014 In-Depth Review highlighted five major risks and imbalances for Croatia External rebalancing is beset by important risks pending the reduction of Croatia's high foreign liabilities. Low competitiveness eroded export market shares even before the crisis. Weaknesses in the labour market and in the wider business environment have amplified the impact of the crisis and hamper adjustment towards stronger, more sustainable growth and employment. The non-financial private sector, (esp. non-financial corporations), entered the crisis highly leveraged after rapid credit growth in the preceding years. The largely foreign-owned banking system has shown resilience. Still, the weak economy has started to interact with the banking sector, and non-performing loans to corporate borrowers have risen to high levels. Pro-cyclical fiscal policies have led to sustained pressure on the general government deficit and debt. Low growth before the crisis, delayed recovery and subdued growth outlook. Higher growth and employment, facilitated by competitiveness, would ease the debt burden. External and internal imbalances reflected in continued, elevated financial market pressure. Competitiveness 1 Adjustment capacity 2 De-leveraging 3 Financial stability 4 Public finances 5 17

18 Specific MIP monitoring in Croatia reveals highly uneven progress since June  Progress on fiscal structural reforms piecemeal, facing implementation risks  Only limited steps to align budgetary projections to ESA standards  Expenditure review preparation in motion but no implementation timeframe  Recurrent property tax being prepared but timing unclear  Measures to improve pension sustainability yet to be outlined  Limited ambition of measures to improve cost-effectiveness of health care  Progress in improving the functioning of the labour markets, labour law reform  Further measures to tackle obstacles to job creation still to be defined  Plan for social benefit consolidation needs full political endorsement  Business climate likely to benefit from planned enhancements of early rescue framework and reform of regional state administration  Progress on removing para-fiscal levies slower than expected  SOE governance improvements limited, restructuring behind plans  Public admininstration and anti-corruption reforms risk being delayed QUALITY AND SUSTAINABILITY OF PUBLIC FINANCES LABOUR MARKET & EFFECTIVENESS OF SOCIAL PROTECTION PROMOTING GROWTH & COMPETITIVE- NESS 18

19 Assessing the effectiveness of the economic governance framework 19 Step 1 Backward-looking review November 2014 Step 2 Specific proposals 2015 Conclusions of Step 1  Six-pack/two-pack reforms have achieved deepening and widening of economic governance  Progress in fiscal consolidation and correcting macroeconomic imbalances  Room for improvement: complexity, overlapping, transparency  Need for better involvement of stakeholders and parliaments to improve legitimacy and accountability

20 Recent and next steps in the European Semester 20 November 2014  European Semester resumed with the AGS  The AMR identified countries for in-depth review  Draft Budgetary Plans were submitted and evaluated  EDP implementation was assessed, following the Autumn Forecast Spring 2015  Commission publishes In-Depth Reviews (IDRs)  Member States present their National Reform Programmes and Stability/Convergence Programmes  Commission proposes Country-Specific Recommendations


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