13 November 2013

President Barroso / VP Rehn: Statements on the European Semester 2014

President Barroso - AGS / In-Depth Reviews / Economic Governance

This year, budgetary coordination in the euro area has gone to a new level. This year, for the first time, Member States have sent us their draft budget plans before they are adopted. On Friday, we will publish our opinions on them, and Vice-President Rehn will present them to you. This is a step change in economic governance.

This year, for the first time also, the social dimension of the Economic and Monetary Union is addressed in our economic policy-coordination along the lines of the communication we presented last month, so as to give us a better understanding of what the situation is in the Member States.

The return of growth shows that our policies are working. That is why, in this year’s Annual Growth Survey, we keep the same five priorities as we had last year, but shift our focus to take account of the specific challenges we face at this stage of recovery [abridged]:

• Pursuing differentiated, growth-friendly fiscal consolidation
• Restoring bank lending to the economy
• Promoting growth and competitiveness for today and tomorrow
• Tackling unemployment and the social consequences of the crisis
• Modernising public administration.

I would like to say a word about the biggest economies of the euro area. By virtue of their size in the European economy, Germany and France have a special responsibility to contribute to the recovery in the rest of the euro area.

Today, the Commission has decided to launch an In-Depth Review on Germany. The figures show that Germany has posted a high and persistent current account surplus, even if it is true that most of this current account surplus is not with European countries, not with the euro area countries. A high surplus does not necessarily mean that there is an imbalance. But we do need to examine this further and understand whether the high surplus in Germany is something that is affecting the functioning of the European economy as a whole. This is not about questioning Germany’s competitiveness, no, because I want to make it clear: the real problem for Europe is not that Germany is very competitive, this is indeed a major asset for the economy of Europe as a whole. The problem is much more that others are still far away from that level of competitiveness. So as I was saying, our problem is, of course it could never be the German competitiveness, but whether Germany, the European Union's economic powerhouse, could do more to help the rebalancing of the European Union economy. That is why we have been recommending, already for several years, that Germany supports the massive demand and investment, for example by opening up its service sector.

Turning now to France, the Commission concluded in April this year that it was experiencing macro-economic imbalances and indicated the need for decisive policy action. France has seen sustained losses of competitiveness over the last 10 years and more efforts are needed to remedy this. In May, France was granted extra time to correct its excessive deficit, and it should use this time to tackle unemployment and to improve its business environment along the lines we have been recommending. Such as: making public spending more efficient, simplifying regulations for businesses and ensuring the tax system is as growth-friendly as possible. So today, we have decided to launch an In-Depth Review, which should allow us to assess in detail whether imbalances persist.

Let me also say a word on Italy. I believe it is essential that Italy remains on the reform path, that political instability does not put at risk the progress achieved and that there is no complacency regarding the challenges ahead, namely the necessary completion of the reforms promised by the government.

Today's package shows the extent to which we have Europeanised economic policy coordination. And in the euro area in particular, as I mentioned before, we have made a genuine leap forward in terms of budgetary coordination. Today it is possible to discuss among us -, in the European Council but also in the different Council formations - to discuss among us the reforms of France, the surplus of Germany, the financial sectors in Spain or Slovenia, the specific problems of the programme countries. This is a major change; it was simply not possible some years ago.

Now we have to consolidate this process, because like that we are indeed putting in practice what is stated in our treaties, namely that today in the European Union - specifically in the euro area - economic policies are no longer a matter of national responsibility only, it is also a matter of European concern...

Once again, this is not about the Commission trying to run national economies in place of governments. No. This is developing a European economic governance that respects fully the national level of governance. It is also about ensuring that what is good for individual Member States is good for the European Union as a whole.

I think it is important, when we have seen the extremely high levels of interdependence, that this interdependence is now translated politically in the common will to deepen our system of economic governance.

The European Semester helps us focus on the bigger picture so that we can leave this crisis behind us stronger than we entered it. We believe that the European economy will get out of this crisis much stronger than before, much more resilient, as you have already seen, but also more competitive. We believe this is a track in which we are now committed to go. Our European semester also points out where we need to be bolder to tackle reforms that are needed to build a lasting and job-rich recovery. Indeed, job-rich growth and competitiveness are the overarching priority of all our action.

Full statement

VP Rehn - AMR / In-Depth Reviews / Germany

In essence, the Alert Mechanism Report is a screening device that looks at macro-economic developments with the help of a scoreboard of agreed indicators. Based on an overall appreciation of the situation, some countries are selected for a more in-depth review. Only when these in-depth reviews are published next spring will we conclude whether imbalances exist at all, and if so, how serious they are. In the meantime, our recommendations, which are in fact Council recommendation from last July, are for sure still valid for all Member States of the EU.

We have decided today to carry out another round of in-depth reviews for the 13 Member States examined in the previous round, which was concluded in April.

For Spain and Slovenia, which we found in April to be experiencing excessive imbalances, we will assess whether these excessive imbalances persist or are unwinding. We will also assess the contribution of the reforms implemented by these two countries to overcome these imbalances. We will also assess the persistence of imbalance in the three countries for which we called for decisive policy actions: France, Italy and Hungary.

For the other Member States identified in spring as experiencing imbalances – Belgium, Bulgaria, Denmark, Malta, the Netherlands, Finland, Sweden and the United Kingdom – we will assess whether these imbalances persist or whether they have been overcome. This could potentially lead to the closure of the Macroeconomic Imbalances Procedure for some Member States, but we will only know this in the coming spring.

We have also decided today to carry out in-depth reviews on Germany and Luxembourg, in order to better understand their internal economic developments and assess whether either country is experiencing imbalances. We will also carry out an in-depth review for Croatia, to understand the nature and potential risks related to its external position, trade performance and economic competitiveness, as well as internal developments, including of course the high level of employment.

Germany

As I said before there is already a lively and sometimes simplistic and not very constructive debate underway about the nature, reasons and impact of a large current account surplus, in particular in Germany. The in-depth review will be done with an open mind and there will be no pre-cooked conclusion, but I am sure that this in-depth review will provide a valuable contribution to the policy debate on economic policy and economic reforms in Germany.

Germany is the growth engine of Europe, not least thanks to its excellent external economic performance and broad trade links to global markets including the fastest growing emerging economies. Let's be clear on this, we are not criticising Germany's external economic competitiveness or its success in global markets, in fact that is what we want from all EU Member States. But a persistent high surplus also means that Germans are persistently investing a large part of their savings abroad. The question is thus whether this is efficient even from the German perspective. In fact we had discussed some of the reasons for these capital flaws in the surplus study of last December already, which I have found has received surprisingly little media interest even though it deserves interest because it is a very well done analytical study.

Germans themselves debate whether they invest enough in their own country. Moreover, we already pointed out in May some areas where Germany should take a look at some structural impediments to domestic demand – as President Barroso said, reforms in the service sector being one of these areas.

More demand in Germany can also spill over to the vulnerable countries to varying degrees, but the precondition for this is that their products and services have to be competitive and that they work further on their economic reform agenda. Otherwise more demand in Germany would simply go to the neighbouring countries and to China and to other emerging economies. So this is a further reason to stay the reform course in Europe.

Full statement

See also: Commissioner Andor - Joint European Report confirms growing divergence

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