What should be done in concrete policy terms? First, it is important that all policy actors stick to their commitments. The euro area unfortunately has a clear track record of policies being held back as soon as early signs of economic improvement are detected. This time, the recovery needs to be underpinned by resolute implementation of agreed policies.
Second, next year's asset quality review and stress tests will be an important step towards restoring credibility in the euro area financial system and will have to be carried out rigorously and earnestly. Rapid completion of a fully-fledged Banking Union is also essential to ensure a proper functioning of the Single Market, facilitate adjustment in EMU and foster the recovery by reversing the process of financial fragmentation. A major step forward was made in September with the adoption of the Single Supervisory Mechanism by the European Parliament. It must now be followed by rapid progress with the Single Resolution Mechanism.
Finally, for its part, the European Commission will continue to monitor, coordinate and guide Member States' macro-economic and structural policies through the EU Semester. With the entry into force of the Two-Pack, the European Commission is now equipped to monitor Member States' draft budgetary plans and ensure an early coordination and better synchronisation of national budgets. Mid-November, the Commission will present its assessment of Member States' draft budgetary plans as well as an overall assessment of the euro area fiscal stance. Together with the Annual Growth Survey, which sets the main policy priorities for the year ahead, and the Alert Mechanism Report, which reviews developments in macro-economic imbalances in the EU, this will form the Autumn surveillance package that kick-starts the EU's annual economic surveillance cycle and will be discussed by the Eurogroup on the 22nd of November.
Clear and resolute efforts in these three areas by all policy actors concerned will give the euro area the best chance to recover and grow by turning formerly vicious circles into virtuous ones.
Press release
Full report
Highlights
The focus section takes a look at the relationship between growth and finance at the level of industrial sectors and shows that more developed financial markets have, to some extent, helped cushion the impact of the crisis on those industries that are more dependent on external funds in the euro area.
A first special topic looks at whether the incomplete pass-through of labour cost moderation into export prices observed in some vulnerable euro area Member States is reflected into profitability developments and discusses possible implications for external rebalancing in these Member States.
A second special topic studies the link between real consumption and consumer confidence and finds evidence of confidence spillovers across countries.
© European Commission
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