economic governance? European Economic and Social Committee - PowerPoint PPT Presentation

Euro Area: Which reforms for better economic governance? European Economic and Social Committee January 26, 2016 By Jeffrey Franks Director, IMF Europe Office in Paris and Brussels

A modest cyclical recovery Domestic demand is strengthening ... … but investment remains weak. 110 110 Real Investment Real GDP (2008 = 100) (2008=100) 105 105 100 100 95 95 90 90 Euro area France Germany 85 US Euro area Japan Italy Spain 80 85

Medium- and long-term shortcomings Service Sector Productivity: Potential GDP Growth US, EA, and EA range (percent change) (2007 = 100) 120 4.0 115 3.5 110 Euro area US 3.0 105 2.5 100 95 2.0 90 1.5 85 1.0 80 US EA 11 (excl IRL and LUX) 0.5 75 70 0.0 2007 2009 2011 2013 1997 2002 2007 2012 2017

Underlying challenges Inadequate Impaired balance demand sheets Clean-up Demand balance support sheets Comprehensive strategy Stronger Structural economic reforms governance framework Governance Low productivity challenges

• QE • SGP flexibility • EFSI • Public investment where possible Clean-up Demand balance sheets support Stronger economic Structural governance reforms framework

High non-performing loans 14 100 Non-Performing Loans, Provisions, and 12 Write-offs Net NPL 80 Provision Percent of GDP Percent of Gross NPLs 10 Provision ratio (rhs) Write-off ratio (rhs) 60 8 6 40 4 20 2 0 0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 United States Euro area Japan

• Prudential oversight • Insolvency reforms • Distressed debt market Clean-up Demand support balance sheets Stronger Structural economic reforms governance framework

Closing Structural Reform Gaps to address low productivity National level Regional level Service Directive Labor market reforms: implementation; reduce rigidities and Completing the Single duality Market Product market reforms: insolvency frameworks, Capital Markets Union: efficiency, access to credit High quality securitization (esp. SMEs)

The case for stronger economic governance • Stronger structural reform governance – “Outcome - based” reform benchmarks – More effective use of EU legislation – Incentivizing reforms • Simplified fiscal framework – Single anchor: public debt to GDP – Single target: expenditure growth rule

Euro area representation at the IMF Before 2010 reforms After 2010 reforms Number of EDs from -2 advanced Europe Euro area countries’ 23.33 21.22 percent of quota Before SDR review After SDR review Euro weight in SDR 37.40 30.93

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