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The Chair of the Eurogroup Jeroen Dijsselbloem highlighted three issues in his press statement: structural reforms, banking union and Greece.
On structural reforms, he referred again to the issue of the 'tax wedge': the taxes on labour that may act as a disincentive to hire. He explained:
"Increasing the growth potential of the euro area is the main point on our agenda in the coming period. In our last meeting we already agreed to start a new process on the coordination of structural reforms, where the Eurogroup can act as a driver for this process.
We identified several topics to discuss: among which the reduction of high tax wedge on labour and also reforming services markets. 11 euro area Member States have received the recommendation of the Commission to reduce the tax wedge on labour (that is to say the difference between the salary costs of a worker to their employer and the amount of net income that a worker receives or 'take-home-pay') as it is called.
This is one of the structural reforms that can make our countries more competitive. And euro area countries have a joint interest in raising employment.
Three of our colleagues, namely from Spain, Italy and the Netherlands presented their domestic initiatives in this respect to kick off our discussion. We summed up up our discussions in a statement which you may have already received, but let me go through the main points for you.
First of all we recognised that several member states have undertaken or are in the process of undertaking reforms to address the high tax wedge on labour but more efforts are needed, of course, taking into account country-specific circumstances. And these will determine the scope, the focus, the design, the time path etc. of these kinds of reforms.
We stressed the need for tax wedge reductions to be financed through cuts in less productive expenditures or through revenue-neutral tax shifts. Away from labour to revenue sources that are less detrimental to growth such as consumption taxes, recurrent property taxes and/or environmental taxes.
While such policies clearly remain a national responsibility, we agreed that a coordinated approach, notably through the exchange of best practices, will help member states in carrying out these reforms. " And he noted: "As we have learnt from previous European Semester exercises that there is a need for a better follow-up to the continued implementation of structural reforms."
On banking union, Mr Dijsselbloem reported back on the SSM and the second phase of the asset quality review. 'It is onging and will be finalised later this month and will feed into the stress test conducted by the EBA and the national supervisory authorities whose results will then be published in October. As announced by the ECB, capital shortfalls will need to be covered within 6-9 months, starting from the release of the stress test results. As you know, the first port of call to address possible capital needs will be private sources, as we see happening in practice already over the last few months.
Should any public capital injection be considered, it would be subject to the state aid rules which, as a general rule, require burden sharing from shareholders and junior debt holders before any public support is given. Member states are or will be preparing the required necessary legislative frameworks and we took stock of the progress being made in this respect. "
On Greece, the Chair noted that it had achieved the first set of milestones related to the 4th review, the so-called May set of milestones. (see separate article for more detail.)