Economic Governance Review Commission Communication on the application of the six-pack and two-pack legislation Karl Scerri and Monika Sherwood DG Economic and Financial Affairs European Commission 1
Outline 1. Context and general approach of the review 2. Fiscal surveillance framework 3. Surveillance of macroeconomic imbalances 4. Support to euro-area Member States with financial stability issues 5. Open questions for a public discussion and next steps 2
Review of the six- and two-pack: a legal requirement • First review published on 28 November 2014, but it was based on insufficient experience with the reformed framework. • Legislation requires a review every five years thereafter. • Where appropriate, the report shall be accompanied by proposals for amendments. 3
Legal basis of the governance framework • Secondary legislation • Regulation (EC) 1466/97(‘preventive arm’): aims to ensure sound budgetary positions • Regulation (EC) 1467/97(‘corrective arm’): aims to correct gross policy errors • Six-pack legislation • Five Regulations : strengthened the SGP and established surveillance of macroeconomic imbalances • One Directive : setting requirements regarding national fiscal frameworks • Two-pack: two Regulations specifically for euro area Member States given risk of spillovers • Other documents that specify the implementation of surveillance • Code of Conduct of the SGP / Code of Conduct on the two-pack • Vade Mecum on the SGP / Compendium on the MIP • Commission Communication and commonly-agreed position on flexibility 4 in the SGP, etc.
General approach of this review Comprises one Communication and two Staff Working Documents Assessment of effectiveness of the surveillance framework, with a focus on the six-pack and two-pack Economic context has materially changed over the last decade • Challenges posed by low potential growth, low interest rates, low inflation, low reform momentum • Need to transform our economies: become the first climate-neutral continent, be fit for the digital age, deal with population ageing and ensure that nobody is left behind. Plans for an inclusive debate with stakeholders following the Communication • Open but precise questions to guide the debate with stakeholders • Decide on follow-up by the end of 2020 5
Outline 1. Context and general approach of the review 2. Fiscal surveillance framework 3. Surveillance of macroeconomic imbalances 4. Support to euro-area Member States with financial stability issues 5. Open questions for a public discussion and next steps 6
Sustainability: excessive deficit procedure effective in bringing deficits below 3% Budget deficit by Member State (% of GDP, 2019 versus 2009) • The corrective arm has been 10.0 an effective tool for reducing and maintaining government 8.0 deficits below the 3% 6.0 threshold. • Effectiveness of simple 4.0 Deficits 3% deficit ceiling numerical rule: easy to grasp 2.0 • But: problem of nominal 0.0 strategy under EDP. RO FR ES IT FI PL SK LV EE PT LT CZ IE SE AT SI MT EL NL LU CY EU28 HU BE HR BG DE DK -2.0 Surpluses 2019 2009 -4.0 7
Sustainability: aggregate debt has fallen, but remains very high in some Member States 6 • Most high-debt Member States Low debt / structural surplus High debt / structural surplus Structural balance (%potGDP, 2018) 5 still far away from their MTO, Fiscal space 4 availabe despite interest windfalls. 3 Significant DE adjustment 2 LU CY • Insufficient traction of preventive BG DK MT needs 1 arm in those Member States: CZ NL HR 0 SE SI Failure to use favourable AT PT LT -1 SK FI IE conditions to reduce debt and BE LV -2 PL EE IT build buffers. UK RO -3 FR HU -4 ES Low debt / → Did 3% act as a target rather High debt / structural deficit -5 structural deficit than a ceiling? 0 20 40 60 80 100 120 140 Gross debt (%GDP, 2018) • Too much focus on Member States with minor fiscal imbalances? 8
Fiscal stabilisation: Problem of pro-cyclicality • Fiscal policies remained pro-cyclical Change in the EU structural deficit versus output gap in many Member States: (% of GDP) 1.5 2.0 counter-cyclical • fiscal consolidation in 2011-13 (incl. fiscal expansion 1.0 1.0 market pressure) • lack of adjustment when economic 0.0 0.5 broadly neutral conditions improved • better compliance with fiscal rules 0.0 -1.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 would reduce pro-cyclicality -0.5 -2.0 • The EU cannot enforce the aggregate EA fiscal stance. -1.0 -3.0 • Monetary policy at ELB: What role pro-cyclical consolidation -4.0 -1.5 for fiscal policy in policy mix? change in the structural deficit (lhs) output gap (rhs) 9
Growth-friendliness: public investment declined during consolidation Public investment in the EU (% of GDP) Public investment by Member State (% of GDP, 2019 vs 2009) 4.0 7.0 7.0 6-Pack Recession 6.0 6.0 2-Pack 3.5 5.0 5.0 4.0 4.0 3.0 3.0 3.0 2.0 2.0 2.5 1.0 1.0 0.0 0.0 2.0 HU LV EE SE BG FI HR LU SI FR EL LT DK NL SK RO BE DE IE IT ES EU28 PL MT CZ AT CY PT 2019 2009 10
National fiscal frameworks • Number of independent fiscal Institutional strengthening institutions in the EU • National rules 40 • Independent fiscal institutions 35 • Medium-term planning 30 • Independent forecasting 25 20 • Supports compliance with EU 15 fiscal rules + increases ownership 10 5 0 2010 2012 2014 2016 2018 But: • Differences in design and implementation practices • Sometimes not fully aligned with EU rules (Fiscal Compact) 11
Governance and ownership • Complexity and lack of predictability harm communication and ownership: multiplicity of rules, divergent compliance indicators, reliance on unobservable and unstable variables, numerous clauses allowing for deviations • DBP process : useful for ex ante coordination • EU rules better taken into account in budget process; • difficulty of influencing national fiscal policy in practice. • Reluctance to launch enforcement procedures and impose financial sanctions. • SDP only in very clear-cut cases (and only non-EA MS so far) • no debt-based EDPs (despite breaches of debt reduction benchmark) • no financial sanctions under EDP (six- and two-pack shifted responsibility on COM) • Emphasis on compliance with annual requirements . • the medium-term orientation of fiscal policy is insufficiently taken into account. • focus on adjustment to MTO distracts from differentiating overall fiscal risks between countries. 12
Outline 1. Context and general approach of the review 2. Fiscal surveillance framework 3. Surveillance of macroeconomic imbalances 4. Support to euro-area Member States with financial stability issues 5. Open questions for a public discussion and next steps 13
Monitoring imbalances: Scope of MIP • MIP widened EU governance and surveillance beyond public finances • Greater focus on other issues relevant to macro stability (e.g., external positions, competitiveness, housing, private debt, financial sector) • Complementary to SGP but links have not been fully exploited • Broadened to include adjustment issues, has to capture new challenges with macro relevance, e.g. issues related to climate change 14
Stock imbalances: Improving but persistent Private sector debt 200 6-Pack Recession 180 2-Pack 160 140 % of GDP 120 100 80 60 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 In MIP for at least 3 years, private debt as a source of imbalances Other EU countries 15
Symmetry of rebalancing: MIP more successful in reducing current account deficits than large and persistent surpluses Euro area current account balance 4 3 2 % of EA GDP 1 0 -1 -2 -3 -4 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19f DE ES FR IT NL Other EA-19 16
Effectiveness and ownership • MIP has raised awareness and focused policy attention on imbalances • Deepened (and structured) dialogue at EU level • Uneven political traction - how to maintain policy responsiveness? • Scope to improve transparency of implementation • Instruments not yet fully exploited (EIP) • Limited ability to achieve symmetry in external adjustment • Ability to prevent new imbalances and vulnerabilities still to be tested 17
Outline 1. Context and general approach of the review 2. Fiscal surveillance framework 3. Surveillance of macroeconomic imbalances 4. Support to euro-area Member States with financial stability issues 5. Open questions for a public discussion and next steps 18
Regulation 472/2013: Supporting Member States facing financial difficulties • Provides surveillance framework for euro area Member States under: • macroeconomic adjustment programmes • post-programme surveillance • enhanced surveillance • All Member States concerned (Cyprus, Greece, Ireland, Spain and Portugal) have successfully returned to market financing , external and fiscal deficits were largely resolved and the stability of the financial sector restored. • Improved accountability : stronger dialogue with EU and national parliaments. • Provides flexible and robust framework for implementation of the governance arrangements across institutional partners, including ESM. 19
Recommend
More recommend
