03 December 2013

VP Rehn: Consolidating the return to growth

In his speech at the 2013 Euro Summit, Rehn said that continued progress with sound public finances should be supported by structural measures supporting sustainable growth and fiscal sustainability.

[A] factor that I want to underline, which is often absent in press reports and in the political debate, is the slowing down of the pace of fiscal consolidation this year: ½ pp of GDP in structural terms. And the envisaged average change next year in the structural balance of the euro area should be ca. ¼ pp of GDP. This “extra oxygen” is relevant for the nascent recovery.

I must however note that the budgetary plans of most eurozone countries for 2014 do not yet seem to pay sufficient attention to the composition of fiscal consolidation. To be more specific, continued progress with sound public finances should be supported by structural measures supporting sustainable growth and fiscal sustainability.

The more rigorous and comprehensive economic governance structure that we have put in place and its full ownership by eurozone Member States and institutions is to my mind a crucial factor for the improvement we see today in the outlook for the euro area. The recognition of that contribution is still rare, but I see it as a real game-changer in this crisis. Today we are closer to a genuine, well-functioning Economic and Monetary Union. The past three years have witnessed a decisive economic and political transformation in Europe, no less than that.

Let me briefly address its latest example. Two weeks ago, and for the first time, the annual cycle of surveillance for euro area Member States was completed with the assessment of their Draft Budgetary Plans by the Commission. This was then followed by an extraordinary Eurogroup meeting where ministers discussed about each other’s budgets with rigour and in a true spirit of partnership. This was legally impossible but also politically unthinkable only three years ago. The architects and founding fathers and mothers of the euro might have dreamt of it before Maastricht, but political interests frustrated that ambition at that time.

The Commission last month launched the fourth European Semester, with the Annual Growth Survey and the Alert Mechanism Report to detect and prevent macro-economic imbalances. The Semester has become the shared time-line and the shared methodology of our enhanced coordination of economic policies.

Over the past three exercises, the country-specific recommendations have become more detailed and more fine-tuned to national specificities, and focused on growth-enhancing policies and fiscal stability. The euro area as such has also a dedicated set of CSRs that reflects the interdependence between its economies.

I am committed to keep a high level of ambition in the monitoring the implementation of the CSRs. But as important or even more is the commitment that the Member States themselves must show in exercising multilateral surveillance and exchanging experiences and best practices.

Repairing the financial system is no doubt a cornerstone of our crisis response. The closer monitoring of the application of the new prudential rules and the banking sector practices represents a credibility test for all the players involved. As you know, further analysis and supervision of the shadow banking system will be made possible through the Capital Requirements Regulation and Capital Requirements Directive legislative package on banks that will enter into force on 1 January, 2014.

Further restructuring in the banking sector – and in the corporate sector – remains important, and the bank stress tests next year are crucial in this regard. This is the precondition to pursue a fully-fledged Banking Union.

As the ECB is setting up the Single Supervisory Mechanism (SSM), it is essential that Member States, the Commission and the European Parliament agree on the creation of the Single Resolution Mechanism. The Commission's proposal of July 2013 includes a proposed Single Resolution Fund established at European level, with financing provided by a central, European source. This would be key to ensuring financial stability, the efficiency of any resolution operation, and to mitigating risks that the resolution process is highjacked by national interest.

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Europe needs to be big in big things and small in small things. Yes, more detailed and demanding rules of economic governance were needed to ensure macro-economic stability. But equally, we need better regulation to unleash the entrepreneurial drive and competitive innovation, to optimise the benefits of the single market for our companies...

To conclude, the signs of an economic turnaround are increasing week by week. But as growth will pick up only gradually and its translation into much-needed jobs will take time, we cannot and must not fall into the trap of complacency. Further decisive action to boost sustainable growth and job creation will continue to be necessary in Europe. This calls for stamina and staying the course of reform.

Full speech

The 2013 Euro Plus Monitor: From Pain to Gain

© European Commission