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06 July 2010

Olli Rehn: Stress tests will help reduce uncertainty and restore confidence


Commissioner Rehn is in favour of full transparency and advocated the extension of bank stress tests and the publication of the results by the end of July. The EC also proposes to reinforce the surveillance and correction of macroeconomic imbalances, with an alert mechanism and a corrective arm.

Speaking at the EP plenary session in Strasbourg, Commissioner Olli Rhen stressed that a key element of restoring confidence is economic governance. He made the following key points:
Ø The Commission is in favour of full transparency and advocated the extension of bank stress tests and the publication of the results by the end of July. This will help reduce uncertainty and restore confidence. In parallel, both national and EU financial backstops – the European Financial Stability Mechanism and Facility – have been put in place.
Ø The Commission adopted last Wednesday a concrete toolbox to reinforce economic governance by substantiating our earlier initiatives and by setting out a roadmap for their implementation.
Ø First of all, the EC wants to safeguard macroeconomic stability and to prevent harmful macroeconomic imbalances in the EU. The EC proposes to reinforce the surveillance and correction of macroeconomic imbalances, with an alert mechanism and a corrective arm.
Ø Divergences in competitiveness and emerging macroeconomic imbalances will be reflected in a scoreboard, with alert threshold that would trigger in-depth analysis and action when flashing.
Ø In most serious and confirmed cases, the Commission would make country-specific recommendations and could also propose placing a Member State in an “excessive imbalances position”. For euro-area countries, an enforcement mechanism in the case of serious and repetitive breach of recommendation could be envisaged.
Ø To integrate all these strands of surveillance, the key tool is the European economic semester. It would allow for prior coordination of economic policies before final decisions on the budget for the following year are taken by member states. He stressed that this is not any interference in member states’ sovereignty; it is about making sure that national budgets are consistent with EU commitments and will not put at risk financial stability in Europe.
Ø All member states would submit their Stability and Convergence Programs and their National Reform Programs at the same time in April to allow the Council to have meaningful ex-ante discussions and issue country-specific policy guidance in July, based on the Commission recommendations. Then, in the second part of the year, member states would finalize their budgets. Commission proposes to launch this European semester as of January 2011.
Next Steps:
On the follow-up of this Communication: the Commission expects the Ecofin Council to confirm 13 July the launch of the European semester in 2011. We shall make legislative proposals on all these issues in early autumn. The Commission also continues its substantial contribution to the work of the Task Force chaired by President Van Rompuy.


© European Commission


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