European Commission - Press release
Quarterly Report on the Euro Area: The European Semester helps to tackle the ongoing debt crisis
Brussels, 13 July 2011 - Against the background of the recently completed first European Semester, the latest edition of the Quarterly Report on the Euro Area published today presents an assessment of the euro-area Member States' Stability Programmes, takes a look at the quality of national fiscal frameworks, and explains the economic adjustment programmes devised for Greece, Ireland and Portugal. This edition examines also the potential risks to the euro area's ongoing recovery posed by higher oil prices and the on-going repair of private sector balance sheets. On the fiscal front, the euro-area Member States' Stability Programmes show significant fiscal consolidation that is frontloaded and mainly based on expenditure. Although consolidation is underway and the debt path is projected to start declining by 2012, further challenges lie ahead. To achieve the 2012 public balance targets set out in the Stability Programmes, euro-area Member States still have to introduce into law additional policy measures. Beyond 2014, further measures may be needed to address the costs of population ageing.
Strong fiscal governance frameworks in Member States are a further element of a more effective integrated surveillance framework. Procedures and institutions that underpin public finances can help to ensure prudent fiscal policymaking at the Member State level. Fiscal governance remains weak in parts of the euro-area. Several Member States still have some way to go before reaching the standards laid down in the draft Directive on budgetary frameworks of EU Member States, which formulates the minimum benchmark for compliance with the Stability and Growth Pact. This directive is included in the "6-pack" of legislative proposals to reinforce economic governance which is currently under discussion in the Council and the European Parliament.
In Greece, Ireland and Portugal, tailor-made economic adjustment programmes have been devised in order to rebuild sovereign funding access, consolidate public finances and raise growth potential through targeted structural reforms. In all programme countries significant steps towards fiscal consolidation have already been taken, and also structural reforms are underway. The Irish programme is well on track, while the Portuguese programme is still in an early stage. The situation is more complex in Greece, where despite substantial progress strengthening of the programme is needed.
The euro area's recovery from the deep 2009 recession remains on track. But growth is expected to slow down and will remain uneven across Member States. Risks surround this scenario, not least those related to unrest in the Middle East and North Africa and its negative impact on oil prices. This Quarterly Report studies oil price shocks through simulations using the Commission's "QUEST model". They show that the underlying causes of oil price shocks matter for economic activity. While oil price increases generally damage growth, increases driven by higher demand tend to be less negative for growth than those driven by lower supply. Recently, both supply disruptions as well as higher world demand for oil appear to be at work.
Finally, this Quarterly Report investigates progress made with respect to the repair of balance sheets of euro-area households and non-financial corporations. Since the crisis the euro-area private sector has strengthened its balance sheet through cautious investment and spending. Households and non-financial corporations have also improved their financial position in a qualitative way by rebalancing portfolios towards less risky assets such as deposits. Compared to the US, the euro-area's household sector's balance sheet looks strong. By contrast, corporate balance sheets are likely to adjust further in the medium term.
Link to the complete report: