13 September 2013

Euro area exits recession - Eurogroup cautiously optimistic

Eurogroup President Dijsselbloem expressed cautious optimism in the light of recent economic data. "We need to carry on with resolve", he said, referring to the ongoing reform effort, the completion of the Banking Union and the objective of improved fiscal policy coordination.

Eurogroup ministers got back to business today in Vilnius in their first meeting since the end of the summer break. There was good news from Cyprus, where work has started in earnest on reforms designed to get the country's economy back on track. The first review of this work has just been successfully completed and will be recognised by a transfer of €1.5 billion to Cyprus from the European Stability Mechanism. Ministers also welcomed positive developments in the broader euro area which has displayed modest growth in the second quarter of this year.

Cyprus

Eurozone ministers reviewed the progress of the Cypriot adjustment programme. Progress has been good over the summer. Tribute was paid to the hard work of the Cypriot authorities that enabled the first review of the programme to be successfully completed.

Eurogroup Statement on Cyprus

Fiscal targets have been met

Challenges have been tackled head-on and a significant reduction of public expenditure has been implemented. In parallel, reforms are being designed to modernize fiscal institutions and in particular the tax administration.

The Cypriot authorities have announced that new measures will be taken to fight tax evasion and boost revenue collection to ensure everyone pays their fair share during a period of economic downturn. A root and branch reform of social welfare is also due to be implemented with the objective of delivering a simpler and fairer system for all.

Financial sector stabilisation is underway

Critically, measures are being taken to stabilise and restructure the financial sector, including the cooperative credit sector. The Bank of Cyprus has now been recapitalised and has exited resolution.

To ensure financial sector stability, a roadmap has been agreed for the gradual relaxation and eventual abolishment of capital controls. Banking sector regulation and supervision is also being strengthened, including the integration of the supervision of the cooperative credit sector into the Central Bank of Cyprus's activities. An anti-money laundering action plan has also been agreed.

The Cypriot programme is on track

While the road ahead clearly remains challenging, the Cypriot programme is on track. This opens the way for a disbursement of €1.5 billion of financing by the European Stability Mechanism (ESM) and €86m by the International Monetary Fund.

Early signs of euro area recovery

Ministers also discussed the latest positive economic developments in the euro area. GDP increased by 0.3 per cent quarter on quarter in the second quarter of this year – signalling the end of the recession.  While underlining these are early days, the Commission expects economic activity to pick up speed in 2014. 

Unemployment, while still too high, has also shown signs of stabilising. In comments made directly after the Eurogroup meeting, the Eurogroup President said that recent economic developments had been "fairly positive", but warned there was no room for complacency. He went on to emphasise the need to press ahead with the completing of the Banking Union and to ensure effective fiscal policy coordination.

The Eurogroup has had a first exchange on the arrangements required ahead of the completion of the ECB's comprehensive assessment of all banks in Member States participating in the Single Supervisory Mechanism. The informal meeting of the EU finance ministers held in Vilnius directly after the Eurogroup meeting also focused on the broader aspects of the Banking Union.

Growth in Portugal

The ministers briefly discussed the situation in Portugal. The above euro area average growth rate was welcomed, as was the political consensus in the new coalition for supporting the Portuguese programme. The findings of the next review mission in Portugal will be discussed by the Eurogroup in October.

The state of play in Slovenia was also touched upon where asset quality reviews and stress tests are on-going for ten banks. The results are expected in November.

A busy autumn in store

The Eurogroup will have a busy autumn. A number of adjustment programmes are coming to an end and the Eurogroup will need to discuss on how to deliver a smooth exit for the countries concerned. 

Euro area-relevant discussions on the Banking Union will continue.

An extra Eurogoup will be convened in November to focus on the Commission's opinions on Member States' draft budgets and help deliver improved budgetary coordination in the euro area. 

Press release

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