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European Commission


Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro

Intervention in ECON committee on macroeconomic imbalances and fiscal policy

Economic Dialogue – EP ECON Committee

25 April 2013

Dear Chairwoman, dear Sharon, Honourable Members,

I am glad to be back here today for our economic dialogue to discuss macro-economic imbalances in the EU and next steps of rebuilding the EMU with you.

In my opening remarks, I will focus on the in-depth reviews the Commission presented two weeks ago, and the Communications on the coordination of major economic reforms and their financial support.

Let me begin with the in-depth reviews and macroeconomic imbalances procedure, which are essential elements of our reinforced economic governance. But I want to focus less on procedure and more on policy. The European Parliament is a political institution and macroeconomic imbalances call for a political debate on policy orientations.

On April 10, the Commission presented In-Depth Reviews for 13 member states. While the challenges that are analysed and discussed in the IDRs tend to differ from country to country, some policy issues are common to several countries. These are:

1. External adjustment, both of the current account and of the trade balance, is proceeding, but external financial liabilities remain a risk for several countries.

2. Both structural and cost competitiveness remain crucial concerns in a number of economies.

3. Deleveraging is moving on in the private sector, but debt levels remain high. This translates into low consumption and investment, which weighs negatively on growth.

4. Housing markets are adjusting, but there is more to go still.

Our conclusion is that there are macroeconomic imbalances in all Member States for which IDRs were prepared, but their nature and gravity differ. Each of them requires policy action and monitoring.

For Spain and Slovenia, we consider that the imbalances are excessive.

In Slovenia, which is in a still manageable economic situation, excessive macroeconomic imbalances have been building up. In a context of negative economic trends, the risks for financial stability that stem from corporate indebtedness and deleveraging are substantial. These risks are compounded by limited adjustment capacity in labour and capital markets and in an economic structure dominated by state-ownership.

In Spain, despite significant progress in 2012, there are still excessive macroeconomic imbalances. Very high domestic and external debt continues to pose risks for growth and financial stability. While there have been improvements in competitiveness and visible adjustments of flows, notably the current account deficit, challenges remain.

Very high unemployment and excessively tight financing conditions have exposed the vulnerabilities represented by those imbalances.

The Commission works in partnership with the Slovenian and Spanish governments, as well as with other governments. We want to support these countries in their reform efforts.

In the case of Slovenia, in order to reverse the negative trend, it should complete the reforms it has started and include comprehensive and concrete policy measures in its forthcoming National Reform Programme and Stability Programme.

In the same vein, Spain should maintain the reform momentum by including comprehensive and concrete policy measures in its programmes.

Against this background, the Commission will now closely examine the forthcoming National Reform Programmes and Stability Programmes of all countries. Following that, our policy advice will be integrated in the package of country-specific recommendations in the end of May. This package will also cover the Excessive Deficit Procedure.

Honourable Members,

Talking about the EDPs and fiscal policy, let me refer to the EU's common economic strategy to promote sustainable economic growth and job creation and to contain the increase of debt. To achieve these twin goals, we have encouraged the balancing of public finances with a consistent fiscal policy over the medium term. That was the rationale to extend the EDP deadlines for Spain, Portugal and Greece last year.

In line with this policy, the pace of fiscal consolidation is now slowing down in Europe. This year, the structural fiscal effort will be ¾ of a percentage point of GDP in the euro area – half of last year’s figure of 1.5 percentage points. The decisions leading to this reduction were made in 2012, in line with the Commission’s recommendations of last spring. By comparison, the United States is reducing its deficit by 1.75 percentage points this year, proportionally twice as much as in Europe.

What has enabled this slower adjustment? This slowing down of the pace of fiscal consolidation has been made possible by three factors:

  • first, by the increased credibility of fiscal policy which the euro area member states have achieved since 2011;

  • second, by the decisive action the ECB has taken to stabilise the markets; and

  • third, by the reform of EU economic governance, which provides an effective framework for a differentiated fiscal adjustment and the advancement of structural reforms.

Thanks to these factors, we have the room to make fiscal policy with a more medium-term view. This was not possible in 2010-2011, when several euro area countries were in danger of becoming insolvent or of falling into to the whirlpool of prohibitively high interest rates. At that time, many member states had to restore their policy credibility by difficult decisions to bring their public finances onto a sustainable path.

Against the backdrop of the current economic outlook and the results of the IDRs, the case for a timely pursuit of necessary structural reforms and for rebuilding and deepening the EMU is evident.

To this end, the Commission presented in March two communications: one on the ex- ante coordination of major economic policy reforms, and the other on a Convergence and Competitiveness Instrument.

Ex-ante coordination implies that plans for the most important economic policy reforms are assessed and discussed at EU-level before final decisions are taken at the national level.

The Convergence and Competitiveness Instrument would include contractual arrangement to enhance national ownership of reforms and the possibility of financial support for the implementation of the reform. For instance, a Member State would undertake a commitment to implement a difficult pension reform in a contractual arrangement and may receive support for a life-long learning programme.

Based on the feedback on the two communications, the Commission will put forward the necessary proposals in the course of 2013.

A final word on the lending for growth. The excessively tight financing conditions are at the moment the biggest obstacle to the revival of growth, especially in southern Europe. Today’s liquidity trap is in fact a financing trap. In this ‘financing trap’, loans are either not available, or they are available only at prohibitive interest rates.

The European Investment Bank is now filling gaps where private banks are currently not capable of supporting the real economy. The capital increase of €10bn, agreed at the initiative of the Commission, allows the EIB to increase its lending in the EU in 2013 by around 40%. The EIB builds on contributions from the private sector, including private banks and capital market investors. We expect the EIB to unlock €180bn of public and private investment over the next three years for growth.

At the same time, we need to complete the repair of the financial sector, in order to unblock private investment. This is not about "bailing out bankers", it is about letting credit flow to create growth and jobs.

All efforts by all EU institutions and member states should therefore be made to address this urgent priority, so that exporting and growth-seeking businesses can get the financing they need in order to support their growth and job creation. In this regard, I welcome the substantial increase of loans to SMEs approved by the EIB yesterday. I also endorse the calls for a new European asset class of securitised loans for small businesses to kick-start the flow of credit.

Thank you for your attention, and I am looking forward to your feedback and suggestions.

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