Brussels, 24/10/2014 (Agence Europe) - The heads of state and government of the EU did not deviate from their trajectory as regards the economy, on Friday 24 October, when they reiterated the importance of continuing structural reforms and budgetary cleansing in order to stimulate economic recovery.
In a meeting of all 28 EU member states in the morning and then in the eurozone format in the afternoon, the European leaders lamented “low growth, very high and persistent levels of unemployment in most European countries and exceptionally low inflation”. This moribund economic situation highlights the “urgent need” to apply measures to boost competitiveness and “protect” the citizens, according to the conclusions that the leaders adopted. Basically: in order to avoid stifling recovery, each country must continue with its reforms and cleanse its public finances, both of which are “key conditions for investment”.
The president of the ECB, Mario Draghi, said that the member states should take inspiration from the concerted action taken at European level in 2012 to prevent the eurozone from imploding, to stop the economy from “collapsing”. In the first and second quarters of 2014, growth in the eurozone stood at 0.1% and 0.3% of GDP respectively. Presenting a timetable for reforms between now and December would be a good idea, he said.
“Every country must make its contribution”, summed up the outgoing president of the European Commission, José Manuel Barroso: the countries in a situation of deficit must reform their economies and those in a situation of surplus must do more to promote internal consumption.
The Italians need to know that reforms in fields such as justice, education and the employment market must be carried out “because they are fair”, stressed the country's prime minister, Matteo Renzi. The French president, François Hollande, discussed the reforms carried out in his country including opening up to competition, reform of the employment market, and reducing the burden on enterprise. The aim of these reforms is to increase the “growth potential”, he stressed, warning that it will take time for these reforms to produce tangible results, as was the case for Germany in the early 2000s.
Investment. The European leaders welcomed the intention of the future president of the Commission, Jean-Claude Juncker, to present, before Christmas, an “initiative mobilising €300 billion of additional investments from public and private sources over the period 2015-2017”. They feel that all existing EU resources, such as the EU budget and the EIB, should be put to use. Welcoming Juncker's “good decision” to anticipate the work, the German Chancellor, Angela Merkel, argued in favour of fleshing out this European initiative, referring to existing sources of jobs in the digital sector. She recommended making use of the revision of the multi-annual financial framework to accompany this initiative. Hollande said that the main thing is for the plan to be implemented “quickly”, as was not the case with the 2012 plan.
Report on economic coordination in the eurozone. The 18, plus Lithuania, which is to join the eurozone on 1 January 2015, discussed the deeper meaning of sharing the single currency. We tackled the “foundations” of the eurozone and its long-term prospects, said the outgoing president of the European Council, Herman Van Rompuy. His successor, Donald Tusk of Poland, was asked to prepare a report for December outlining the areas of action for closer economic coordination between the 18, in cooperation with the presidents of the Eurogroup and of the ECB. Merkel agreed with Draghi, who argues that a coordination of economic policies within the eurozone is a “pre-requisite for coming out of the underlying crisis”.
The European Commission is currently going through the draft 2015 budgets of the eurozone countries with a fine-tooth comb. As of next week, it may ask some of them, such as France and Italy, to change their drafts in order to respect their budgetary cleansing commitments. What we are doing is seeing whether, for certain countries, there is any “particularly significant deviation” from the rules of the Stability Pact, said Barroso. In favour of making the maximum possible use of the flexibility built into the European budgetary rules, he accused the Eurogroup of making the investment clause, which can be used by any country with a public deficit of more than 3% of GDP, “virtually inoperative”.
Banking health check. The president of the ECB referred to the publication, on Sunday 26 October, of the results of the asset quality review (AQR) carried out by the ECB among some 130 banking groups and the banking stress tests carried out by the European Banking Authority (EBA) on the EU banking sector as a whole. Doubtless the European leaders will get a sneak preview.
Draghi stressed the importance of a process initiated one year ago to encourage the European banks to consolidate their financial statements proactively. In one year, these have issued nearly €41 billion and made provisions to the tune of €19 billion. The banks for which an own-funds deficit has been identified will have between six and nine months to increase their prudential ratio.
On Friday, market speculation was rife as to the identity and number of banks which failed the health check. A group of banks of between 10 and 30 establishments reported to have been asked to find additional capital was mentioned, including the Italian Banca Monte dei Paschi di Siena, Germany's IKB and Permanent TSB of Ireland.
The publication of the banking health check coincides with the launch of the supervision plank of banking union in the eurozone, whereby the ECB will take direct responsibility for supervising 119 bank groups from 4 November onwards. “A resilient, well-regulated and well-supervised European banking sector will help to support economic recovery”, the heads of state and government stressed. (MB with CG/IL/MD/SP)