The economic crisis – The EU’s response

The European Union is responding to the global economic crisis through actions on different levels. They include:

fiscal consolidation and strengthened economic governance
reform and repair of the financial sector
reforms to boost growth and job creation
supporting EU countries in difficulty, while the reforms produce results

Overviews:

Timeline showing developments from 2008 to the present, with key documents and summaries

Summary of actions and links on economic governance
- Timeline of the financial crisis response including regulations, directives and proposals
- Timeline on rating agencies including links to regulations, directives and proposals

The economic situation in individual countries
- Balance-of-payments assistance
- Monthly summary of state aid measures
- Macro-Financial Assistance to non EU-countries

Fiscal consolidation and strengthened economic governance

The EU is taking concrete steps for a much stronger integration within the Economic and Monetary Union. EU action is focusing on restoring the sustainability of public finances and addressing other macroeconomic imbalances as well as on providing financial assistance to Member States in difficulties. In addition, new rules are set to ensure stronger and more effective economic governance, particularly for the euro area, with adequate mechanisms to monitor progress and ensure enforcement.

Key elements

Treaty on stability, coordination and governance in the Economic and Monetary Union (fiscal compact): This treaty, also known as the "fiscal compact", entered into force on 1 January 2013 following its ratification by Finland. The treaty aims to strengthen fiscal discipline in the euro area through the "balanced budget rule" and the automatic correction mechanism.
Treaty establishing the European Stability Mechanism (ESM): Euro area countries signed it on 2 February 2012. The ESM is designed to safeguard financial stability in the euro area by providing conditional financial assistance to Member States under severe market pressure. It entered into force in October 2012 and will gradually replace the temporary European Financial Stability Facility (EFSF), created by euro area countries in May 2010.
The “Six pack”: This reinforced the Stability and Growth Pact with new rules on economic and fiscal surveillance and introduced a new Macroeconomic Imbalances Procedure, which aims to prevent the emergence of harmful imbalances and to correct those already existing. The "Six Pack" entered into force in December 2011.
The European Semester: This allows EU Member States to coordinate ex ante their budgetary and economic policies, in line with both the Stability and Growth Pact and the Europe 2020 strategy. It was approved by the Member States in September 2010.
The "Two Pack", a strengthened budgetary surveillance in the euro area: The European Commission proposed two new regulations on 23 November 2011. They were adopted by the Council on 13 May 2013.
Green paper on stability bonds: Published by the European Commission on 23 November 2011, it structures the political debate in the EU on the rationale, pre-conditions and possible options of coordinated or joint debt issuance.
Credit rating agencies: New rules on when and how credit rating agencies may rate state debts and private firms’ financial health were approved on 16 January 2013 by the European Parliament and were adopted by the Council on 13 May 2013. They will allow agencies to issue unsolicited sovereign debt ratings only on set dates, and enable private investors to sue them for negligence.
More information
Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance.
More information on credit rating agencies

Reform and repair of the financial sector

The EU action is aimed at implementing a stricter regulatory regime for the financial sector not only internally but also on a global level (G20). At the same time, it is necessary to strengthen the financial sector so that banks can support the economy by providing credit.

Key elements

Several new rules and initiatives have been or are being put in place as part of a financial regulation programme in response to the financial crisis and to G20 commitments.
A set of temporary state aid control rules to assess public support to financial institutions during the crisis. This crisis regime was first adopted in 2008-2009 in the wake of the financial crisis that followed the collapse of Lehman Brothers. The rules have since then been updated and prolonged.
A new financial supervision architecture based on four new European supervisory authorities launched on 1 January 2011: EBA for banks, ESMA for securities markets, EIOPA for insurance and pensions, together with a European Systemic Risk Board (ESRB) to contribute to the prevention or mitigation of systemic risks to financial stability in the Union that arise from developments within the financial system.
EU-wide stress tests are conducted by EBA in cooperation with the ESRB. The aim of such tests is to assess the resilience of financial institutions to adverse market developments, as well as to contribute to the overall assessment of systemic risk in the EU financial system.
Stricter capital requirements and better corporate governance for banks and investment firms: The European Commission adopted a legislative package (the fourth capital requirements directive) to strengthen the regulation of the banking sector on 20 July 2011.
The European Council agreed a banking package on 26 October 2011 in order to support banks in accessing term funding and to increase the level of high-quality capital that banks hold.
The European Central Bank has agreed on specific measures to support bank lending and money market activity on 8 December 2011.
On 12 September 2012 the Commission proposed a single supervisory mechanism (SSM) for banks led by the European Central Bank (ECB) in order to strengthen the Economic and Monetary Union. The set of proposals is a first step towards an integrated “banking union ” which includes further components such as a single rulebook, common deposit protection and a single bank resolution mechanism.
More information
Financial reform table

Reforms to boost growth and job creation

The EU action also aims to encourage structural reforms and to support growth-enhancing investments; to strengthen the single market especially for services, energy and e-commerce; and to tackle unemployment, especially youth unemployment. The aim is to create the conditions for smarter, more sustainable growth.

Key elements

The EU's long-term growth strategy is called Europe 2020. It was proposed by the Commission and was endorsed by the European Council two years ago. Based on the principles of smart, sustainable and inclusive growth, Europe 2020 sets out five key targets in the areas of employment, research and innovation, education, poverty reduction and climate/energy. This strategy remains valid and should help Member States to pull in the same direction. Its implementation is crucial to boosting our growth potential.
Completing the single market in services and building the EU digital single market have significant growth potential. The December 2011 European Council agreed to fast-track a list proposed by the Commission of important proposals in this area, especially those in the Single Market Act: a series of 12 key measures proposed by the Commission in April 2011 with the aim of tapping fully the potential of the EU single market. Others form part of efforts to create a Digital Single Marketby 2015.
The Commission put forward a proposal, subsequently endorsed by the EU Council and European Parliament, to increase to 95% the EU contribution to co-funded projects in countries benefitting from financial assistance programmes. The Commission has also been taking action to re-programme EU structural funding where appropriate, for example to guarantee funding for SMEs in Greece.
The Commission also put forward a proposal to use EU project bonds to stimulate private financing of key infrastructure projects. Looking beyond the immediate term, the Commission wants the 2014-2020 Multiannual Financial Frameworkto be closely tied to the Europe 2020 growth agenda and to that end has proposed allocating €80 billion to research and innovation, €50 billion to strategic transport and energy links and digital networks and €2.5 billion to support the launch of new companies. The Commission has also tabled proposals to ensure that EU social and regional development funding in 2014-2020 similarly reflects the growth and jobs agenda.
To give further impetus to the governance reforms, 23 Member States, including six outside the euro-area (Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania), signed the Euro Plus Pactin March 2011. The Pact commits signatories to even stronger economic coordination for competitiveness and convergence, also in areas of national competence, with concrete goals agreed on and reviewed on a yearly basis by Heads of State or Government. The Euro Plus Pact is integrated into the European semesterand the Commission monitors implementation of the commitments.

Supporting EU countries in difficulty

The EU’s economic governance system allows for an appropriate steer and follow-up at EU level. Each year, the Commission carefully analyses the National Reform Programmeof each Member State and checks whether the policies are in line with the orientation set out above. Its findings are subsequently reflected in the Country-Specific Recommendationsthat the Commission adopts in May and presents for approval to the European Council in June. The newly introduced Macroeconomic Imbalance Procedure guarantees enhanced monitoring of macroeconomic imbalances with the possibility of sanctions for euro area Member States that do not address these when they become excessive.

Support for countries in difficulty

European Stabilisation Actions provide financial assistance which is capable of supporting EU Member States in difficulty and thereby preserving the financial stability of the EU. Financial assistance is linked to strict macroeconomic conditionality and aims to support the country's efforts to restore fiscal sustainability and to implement structural reforms in order to improve the competitiveness of the economy, thereby laying the foundations for sustainable economic growth and job creation.

Cyprus: In December 2012, the Council discussed the draft memorandum of understanding for financial assistance to Cyprus which outlines the main elements for the macroeconomic adjustment programme for the country, agreed by Cyprus and the Troika (European Commission, European Central Bank and the International Monetary Fund). In March 2013, euro area finance ministers reached an agreement with the Cypriot authorities for a future economic adjustment programme.
Greece: Greece was the first euro area Member State to find itself frozen out of international bond markets. This led to the launch in May 2010 of a financial assistance programme worth €110 billion, with €80 billion coming from bilateral loans from euro area Member States and €30 billion via the IMF.
In March 2012, euro area finance ministers approved financing of the Second Economic Adjustment Programme for Greece. The euro-area Member States and the IMF committed the undisbursed amounts of the first programme plus an additional €130 billion for the years 2012-14. Whereas the financing of the first programme was based on bilateral loans, it was agreed that - on the side of euro-area Member States - the second programme would be financed by the European Financial Stability Facility (EFSF).
In total, the second programme foresees financial assistance of €164.5 billion until the end of 2014. Of this amount, the euro-area commitment amounts to €144.7 billion to be provided via the EFSF, while the IMF contributes €19.8 billion.
On 20 July 2011, a Task Forcewas launched to provide technical assistance to Greece.
The purpose of the Task Force is to identify and coordinate the technical assistance that Greece needs to deliver of the EU/IMF adjustment programme and to accelerate the absorption of EU funds.
Ireland: The Economic Adjustment Programme for Ireland was formally agreed in December 2010. It includes a joint financing package of €85 billion and covers the period 2010-2013.
Portugal: The Economic Adjustment Programme for Portugal was agreed in May 2011. It covers the period 2011 to mid-2014 and includes a joint financing package of €78 billion (EU/EFSM – €26 billion, euro area/EFSF – €26 billion, IMF – about €26 billion).
Spain: In July 2012 the Eurogroup agreed to provide up to €100 billion to Spain for the recapitalisation and restructuring of its financial sector. This funding is provided by the EFSF and is aimed at supporting the emergence of a reformed, responsible banking sector for Spain capable of supporting growth and employment.
Balance of Payments assistance: During the crisis, assistance under the EU’s Balance of Payments facility was also provided to Latvia and Hungary, and a precautionary programme is still underway for Romania.

Statistics, graphs and public opinion

Economic governance in graphs
Background on the Euro Plus Pact and economic overview (December 2011)
Statistics: Financial turmoil
Statistics: National accounts
Statistics: Balance of payments
Survey (European Parliament): Europeans and the crisis
Survey (European Parliament): Europeans’ perceptions on the state of the economy
Survey (Eurobarometer): Economic governance in the EU
Survey (Eurobarometer): Europeans’ evaluation of the economic situation and main concerns
Economic sentiment and business climate indicators

Latest press releases

Press contacts

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Council of the European Union

François HEAD
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European Commission
Economic and monetary affairs
Commissioner Olli Rehn

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Press Officer
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Financial services (Internal Market)
Commissioner Michel Barnier

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Chantal HUGHES
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