34 th Associates Meeting - Andorra, 25 May Item 5: Evolution of economic governance in the EU

Transcription

1 34 th Associates Meeting - Andorra, 25 May Item 5: Evolution of economic governance in the EU

2 Plan of the Presentation 1. Fiscal and economic coordination: how did it start? 2. Did it work? 3. Five years into crisis: what changed? 4. Where are we now? 5. What future? 2

3 1. How did it start: Why introduce rules? The ever-closer Union: Economic & Monetary Union (1999): ECB to conduct monetary policy with the central goal of price stability in the whole euro area; and National governments to ensure economic growth and fiscal discipline at national level. Every member country of the euro area must respect fiscal rules in order to ensure economic stability of the whole euro area. 3

4 1. How did it start: Relevant EU Treaties Treaty on European Union, known as the "Maastricht Treaty", Article 104c (OJ: , in force: ) - sets out the Maastricht Criteria. Treaty of Amsterdam, Articles 99 & 104 (OJ: , in force: ) Consolidated versions of the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU), Articles 121 and 126 ( ) 4

5 1. How did it start: Essence of the Treaties provisions Economic: EU Member States (MS) shall regard their economic policies as a matter of common concern; EU institutions are there to monitor economic development; In case of side-tracking: Commission & Council issue recommendations, multilateral surveillance procedure. Fiscal: EU MS shall avoid excessive government deficits; If MS go into excessive deficits, Commission writes reports, informs Council and they take measures: warnings, recommendations, imposition of a non-interest-bearing deposit, fines. 5

6 1. How did it start: Stability & Growth Pact Stability and Growth Pact was signed in 1997 and entered into force in 1999 (same as ToA). Its key message: euro area MS must respect the following two rules: Government budget must not exceed -3% deficit, State debt must not go beyond 60%. 6

7 2. Did it work: Why was it not enough? The economic and fiscal discipline rules enshrined in the Treaties & SGP were weak on: Concrete parameters (e.g. scoreboard); Concrete sanctions (on specific amounts & enforcement); Guaranteeing the MS commitment. Result: Germany & France set precedent by breaching the fiscal rules; growing fiscal and macro-economic imbalances at national levels; while the ECB continues to ensure price stability. a weak E and a strong M of the EMU. 7

8 2. Did it work: the quiet before the storm By 2005, Germany & France convinced the EU authorities to relax the SGP by making it harder to prosecute the misbehaving MS. By 2009, governments deficits ballooned to -6.4% of GDP in the euro area (forcing state debt to almost 80% of GDP), thus rendering the SGP rules irrelevant. 8

9 3. Five years into crisis: what changed? Reinforcing the economic governance Euro Plus Pact (March 2011): Stronger economic policy coordination for competitiveness & convergence. SixPack (December 2011): Six EU legislative measures to give the SGP the teeth to enforce fiscal rules, and to introduce new macroeconomic surveillance. Treaty on Stability, Coordination and Governance (TSCG, signed on 02/03/2012; to come into force 01/01/2013) also called Fiscal Compact; an inter-governmental Treaty, subject to ratification. TwoPack (work in progress, for adoption by mid-2012) Two Regulations to strengthen surveillance mechanisms, and to promote further economic integration and convergence in the euro area. 9

10 3. Five years into crisis: what changed? What do new treaties boil down to? Monitoring of each Member State s: Fiscal situation; Macro-economic situation. based on Medium-Term Objectives for each MS, and a scoreboard of indicators. Policy planning & coordination: National Budget approval first at EU level. via a process called European Semester. In case of fiscal or economic imbalances: Adjustment programmes; Clear and semi-automatic financial sanctions for continuously misbehaving MS. as stipulated in the Six-Pack and the TSCG. 10

11 4. Where we are now? Rules for fiscal prudence Two conditions for fiscal prudence: State Debt within (or reducing towards) 60% of GDP; (Structural) Government budget is in balance or in surplus. Today, in the EU, only four countries are not subject to the EDP: Finland, Sweden, Luxembourg & Estonia. 11

12 Hungary Estonia Sweden Finland Luxembourg Germany Denmark Bulgaria 4. Where we are now? Government Deficit, % of GDP (EU) Austria Malta Czech Republic Latvia Belgium Italy Portugal Netherlands Slovakia Poland France Romania Lithuania Cyprus Slovenia United Kingdom Spain Greece Ireland threshold Source: Eurostat 12

13 Estonia Bulgaria Luxembourg Romania Sweden Lithuania Latvia Slovakia Norway 4. Where we are now? Public Sector Debt, % of GDP (EU) Czech Republic Denmark Slovenia Finland Poland Netherlands Spain Cyprus Malta Austria Hungary Germany United Kingdom France Belgium Portugal Ireland Italy Greece 180,0 160,0 140,0 120,0 100,0 80,0 60,0 40,0 20,0 0, Threshold Source: Eurostat Note: four euro area MS s public sector debt is above 100% of GDP 13

14 Croatia Serbia Armenia Albania Ukraine Government Deficit & Public Sector Debt % of GDP (Associates) Montenegro B & H Macedonia Turkey Russia Azerbaijan Azerbaijan Russia Moldova Macedonia B & H Turkey Armenia Serbia Ukraine Montenegro Croatia Albania Fiscal balance incl. grants, % of GDP Public sector debt, % of GDP 25,0 20,0 15,0 10,0 5,0 0,0-5,0-10,0 70,0 60,0 50,0 40,0 30,0 20,0 10,0 0, (p) threshold Threshold Source: IMF Source: Eurostat 14

15 4. Where we are now? Macroeconomic Imbalances Macroeconomic Imbalances Procedure (MIP): Scoreboard of Lead Indicators EXTERNAL IMBALANCES AND COMPETITIVENESS 3 year average of the current account balance as a percentage of GDP, with a threshold of +6% and - 4% of GDP; net international investment position (NIIP) as a percentage of GDP, with a threshold of -35%; the NIIP shows the difference between a country's external financial assets and its external financial liabilities; 5 year percentage change of export market shares measured in values, with a threshold of -6%; 3 year percentage change in nominal unit labour cost (ULC), with thresholds of +9% for euro area countries and +12% for non-euro area countries; 3 year percentage change of the real effective exchange rates (REER) based on HICP deflators, relative to 35 other industrial countries, with thresholds of -/+5% for euro-area countries and - /+11% for non-euro-area countries; the REER shows price competitiveness relative to the main trading partners. INTERNAL IMBALANCES private sector debt as a percentage of GDP with a threshold of 160%; private sector credit flow as a percentage of GDP with a threshold of 15%; year-on-year changes in deflated house prices, with a threshold of 6%; public sector debt as a percentage of GDP with a threshold of 60%; 3-year average of unemployment rate, with a threshold of 10%. 15

16 4. Where we are now? Macroeconomic Imbalances MIP Scoreboard: Additional indicators 1. % y-o-y growth of real Gross Domestic Product (GDP) 2. Gross fixed capital formation, as % GDP 3. Gross domestic expenditure on Research & Development, as % GDP 4. Current Account balance, as % of GDP, Balance of Payments data 5. Net lending / borrowing versus Rest of the World, as % GDP, Balance of Payments data 6. Net external debt, as % GDP 7. FDI Inflows, as % GDP 8. Net Trade Balance of energy products, as % GDP 9. % Change (3 years) in Real Effective Exchange Rate (REER) versus Euro Area (17) 10. % year-on-year change in Export Market Shares, volumes 11. % year-on-year growth of Labour Productivity 12. % year-on-year growth of Employment 13. % change (10 years) in Nominal Unit Labour Cost (ULC) 14. % change (10 years) in Effective Unit Labour Cost versus Euro Area (17) 15. % change (3 years) in Nominal House Prices 16. Residential Construction, as % GDP 17. Private Sector Debt, as % GDP, consolidated data 18. % y-o-y change in Financial Liabilities of the whole financial sector, NCO data 16

17 Iceland Cyprus 4. Where we are now? 3-year average of the current account balance, % of GDP (EU) Bulgaria Romania Spain Malta Poland Slovakia Ireland Slovenia Italy Czech Republic Lithuania United Kingdom Hungary France Estonia Latvia Portugal Greece Belgium Luxembourg Austria Finland Denmark Netherlands Germany Switzerland Sweden Norway 20,0% 15,0% 10,0% 5,0% 0,0% -5,0% -10,0% -15,0% -20,0% -25,0% Max Min Source: IMF EBF calculations 17

18 Montenegro Serbia Moldova Albania Armenia B & H Macedonia Croatia Ukraine Turkey Russia Azerbaijan 4. Where we are now? 3-year average of the current account balance, % of GDP (Associates) 30,0% 20,0% 10,0% 0,0% -10,0% -20,0% -30,0% -40,0% -50,0% Max Min Source: IMF EBF calculations 18

19 Netherlands Austria Luxembourg Cyprus Malta Germany 4. Where we are now? 3-year average of unemployment rate, % (EU) Czech R. Denmark Romania Slovenia Belgium UK Sweden Finland Italy Poland EU-27 France Bulgaria Eurozone Hungary Portugal Greece Slovakia Ireland Estonia Lithuania Latvia Spain 25,0 20,0 15,0 10,0 5,0 0,0 Jan-2006-Jan2009 Feb Max Source: Eurostat EBF calculations 19

20 Azerbaijan Moldova Ukraine Russia Armenia Turkey Albania Montenegro Croatia Serbia Macedonia B&H 4. Where we are now? 3-year average of unemployment rate, % (Associates) 45,0 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0, Max Source: IMF EBF calculations NB: data for Azerbaijan is from 2004 (last observation) 20

21 Ireland Latvia Cyprus Lithuania UK 4. Where we are now? Private sector credit flow, % of GDP (EU) Hungary Slovenia Denmark Portugal Greece Germany Belgium Austria Poland Luxembourg Estonia Finland Bulgaria Czech R Romania Italy Slovakia Netherlands Spain France Sweden Malta 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% -5,0% -10,0% -15,0% -20,0% -25,0% -30,0% -35,0% -40,0% -45,0% threshold Source: ECB 21

22 4. Where we are now? Private sector credit flow, % of GDP (Associates) Russia Montenegro Azerbaijan FYR Macedonia Albania B & H Ukraine Croatia Moldova Serbia Armenia Turkey 20,0% 10,0% 0,0% -10,0% -20,0% -30,0% -40,0% threshold Source: EBF 22

23 4. Where we are now? Macroeconomic Imbalances Procedure (MIP) The Commission considers that the risks of imbalances in the following countries warrant further investigation: Belgium, Bulgaria, Denmark, Spain, France, Italy, Cyprus, Hungary, Slovenia, Finland, Sweden and the UK. 23

24 4. Where we are now? Annual Growth Survey 2012 AGS key messages: MS have not done enough to enact the measures they have committed to at EU level. It calls for the EU and MS to focus on five priorities: Pursuing differentiated growth-friendly fiscal consolidation; Restoring normal lending to the economy; Promoting growth and competitiveness for today and tomorrow; Tackling unemployment and the social consequences of the crisis; Modernising public administration. 24

25 5. What future? We will see how new rules play out: Will governments (be able to) respect the new rules? Fiscal consolidation (austerity) hurts growth: Downward spiral or just belt-tightening? More regulation of governments & financial industry is coming: is this the right way to save the largest global economic actor from a decline? Impact on banks & economy hard to predict. Next step for ever closer Union Fiscal Union? 25

26 Thank you for your attention! Questions? Comments? 50 Years of Sound Banking Representation 26