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Before talking about the Alert Mechanism Report, Rehn focused on three of the key areas highlighted in the 2013 Annual Growth Survey.
First, we need to complete the repair and reform of the financial sector. This is not about ‘bailing out bankers’: it is about ensuring access to finance for the businesses that make up the real economy, especially SMEs. Improved access to financing for our companies, wherever they are located, is essential to strengthen the foundations of exports and industrial production.
We especially need to boost productive investment, both public and private, to get the wheels of the European economy rolling again. With the financial sector still not functioning as it should, public banks can play an especially important role. That is why the European Council agreed to increase the paid-in capital of the European Investment Bank by €10 billion, which will already be reflected in the EIB's lending programme for 2013. This should support total investment in the range of €180 billion over three years in the areas of innovation and skills, SME access to finance, resource efficiency and strategic infrastructure.
The EIB is also at an advanced stage of preparing projects for financing via project bonds, which would allow capital market investors, such as insurance companies and pension funds, to invest long-term in key European infrastructure...
Second, we need to press on with structural reforms. There is indeed a wave of reforms underway in Europe. Since the start of the crisis, many EU member states have taken great strides to clear the long backlog of legal and regulatory obstacles to a more dynamic economy. This momentum must be maintained and where necessary stepped up...
Third, we need to ensure the sustainability of our public finances, with fiscal consolidation carried out in a smart way – preserving investment in areas essential to future growth, such as research and innovation, education and energy.
The reinforced economic governance continues to provide the right framework for bringing public finances back to sustainable levels and allows taking into account country-specific circumstances. What is most important is that the structural deficit – which irons out the impact of one-off measures and of the economic cycle – should be kept on a steady downward path. That is why the Commission focuses first and foremost on the structural fiscal effort made when assessing each country’s compliance with its commitments under the Stability and Growth Pact.
Sound public finances are a prerequisite for sustainable growth. Fiscal consolidation can have a negative impact on growth in the short-term, but the impact of running unsustainable deficits over time is far worse: this crisis has provided ample evidence of that.
The Commission will explore further ways within the existing rules of the preventive arm of the Pact to accommodate investment programmes in the assessment of Stability and Convergence Programmes. Specifically, under certain conditions, non-recurrent, public investment programmes with a proven impact on the sustainability of public finances could qualify for a temporary deviation from the medium-term budgetary objective or the adjustment path towards it. This could apply, for example, for government investment projects co-financed with the EU, consistently with the framework of macro-conditionality.
We should be clear that a specific treatment of public investment should only lead to a temporary deviation from adjustment path towards the medium term budgetary objective. In other words, specific provisions for investment projects should not be confused with a so-called 'golden rule' to allow a permanent exception for all public investment. Such an indiscriminate approach could easily put in danger the prime objective of the Pact by undermining the sustainability of government debt.]
Rehn concluded with a few words on the second Alert Mechanism Report, the starting point for the Macro-economic Imbalance Procedure created with the 'six-pack' legislation last year.
The AMR is essentially a screening device identifying those Member States that appear to be experiencing imbalances. It is a pre-emptive tool for macro-economic stability, which is a necessary condition for sustained growth and job creation.
It is in the second step, the forthcoming in-depth reviews where we will analyse in depth whether the identified issues are benign or problematic. If they are unproblematic, then no further steps are needed – there is no 'presumption of guilt'. The macroeconomic imbalances analysis is a way to deepen our dialogue in economic policy making with the Member States, as a new kind of partnership of providing relevant policy advice.
As was the case last time, all Member States except for the four programme countries, Greece, Ireland, Portugal and Romania have been examined. Many Member States face large deleveraging needs, often linked to the unsustainable build-up of credit-fuelled expenditure before the crisis. Deleveraging implies that previous spending levels cannot no longer be financed, which unfortunately but inevitably reduces domestic demand. The good news is that economic adjustment within the euro area is progressing. The difficult reforms being implemented, mainly in the most vulnerable countries, are starting to bear fruit. The large internal and external imbalances that built up before the crisis are now diminishing.
Today's report lists the 12 countries for which an imbalance under the preventive arm of the MIP was identified in May this year following the in-depth reviews. While there is clearly a correction of internal and external imbalances underway in several countries, we should carefully scrutinise developments before concluding that an imbalance has been resolved.
To this group of 12 countries we have added two additional countries, namely the Netherlands and Malta. Both countries were basically borderline already last year and now we think it is to look at some of the developments more in depth before concluding whether there is an imbalance, and to better illuminate possible recommendations in the European Semester package in May next year.
Finally, as promised in the AMR of February, I can confirm that the Commission will in the coming weeks present a study on the role and nature of current account surpluses in the EU and the euro area. This will further help in understanding the driving forces and requirements behind the ongoing rebalancing.