Tag Archives: Economic and monetary policy

Stability and growth pact and economic policy coordination

Stability and growth pact and economic policy coordination

Outline of the Community (European Union) legislation about Stability and growth pact and economic policy coordination

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Stability and growth pact and economic policy coordination

The Stability and Growth Pact is intended to ensure that Member States maintain budget discipline in order to avoid excessive deficits. It therefore contributes to monetary stability. Member States coordinate their economic policies at European level.

STABILITY AND GROWTH PACT

Implementation of the pact

  • Resolution of the Amsterdam European Council on the stability and growth pact
  • Surveillance of budgetary policies
  • The corrective arm: the excessive deficit procedure
  • Requirements for budgetary frameworks of the Member States

Implementation of the pact

  • A European Economic Recovery Plan
  • Reporting of planned deficits by Member States
  • European financial stabilisation mechanism

ECONOMIC POLICY COORDINATION

Basic provisions

  • Resolution of the European Council on economic policy coordination (1997)
  • Reinforcing economic policy coordination
  • Streamlining of annual economic and employment policy coordination cycles

Council recommendations

  • Broad guidelines for economic policies
  • Broad Economic Policy Guidelines (2008- 2010)
  • Broad economic policy guidelines (2005- 2008)
  • Broad economic policy guidelines 2003-2005
  • Broad economic policy guidelines (2002)
  • Broad economic policy guidelines (2001)
  • Broad economic policy guidelines (2000)
  • Broad economic policy guidelines (1999)
  • Broad economic policy guidelines (1998)
  • Broad economic policy guidelines (1997)
  • Broad economic policy guidelines (1996)

Public finances in Member States

  • Ensuring the effectiveness of the preventive arm of the Stability and Growth Pact: Public Finances in EMU – 2007
  • Long-term sustainability of public finances in the EU
  • Revising the Stability and Growth Pact: Public Finances in EMU 2006
  • Public finances in Member States in 2005
  • Public finances in Member States in 2004

The European economy

  • The European economy: 2007 Review
  • The European economy: 2006 review – strengthening the euro area
  • The European economy: 2004 Review
  • The OECD and the examination of EC economic policies

Declaration on the Euro area

  • 2009 Annual Statement on the Euro Area
  • 2007 Annual Statement on the Euro Area

The euro area in the world economy – Developments in the first three years

The euro area in the world economy – Developments in the first three years

Outline of the Community (European Union) legislation about The euro area in the world economy – Developments in the first three years

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

The euro area in the world economy – Developments in the first three years

Document or Iniciative

Commission communication “The euro area in the world economy – Developments in the first three years” [COM(2002) 332 final – Not published in the Official Journal].

Summary

The third stage of economic and monetary union (EMU) started on 1 January 1999. Three years later, the euro became a tangible reality as notes and coins were put into circulation. Completion of EMU is an historic event with repercussions that are profoundly re-shaping the economies of the Member States of the euro area.

ECONOMIC SITUATION

Economic growth. After growing by an average of 3% during the first two years of EMU, the euro-area economy slowed down briefly in 2001 as a result of a number of factors including the hike in oil prices, the bursting of the speculative bubble on share markets and the events of 11 September.

Labour market. The situation on the labour market has improved in the last three years of the single currency. Some 6 million jobs have been created and this trend has even continued during the economic slowdown. The unemployment rate in the euro area fell to 8.3% in 2001 under the impact of structural reforms, wage restraint and economic growth.

Inflation. With inflation running at a subdued level of 1.1% in 1999, consumer prices rose, touching 2.5% in 2001 as a result of the hike in oil prices and the weakness of the euro against the US dollar. The increase in food prices caused by the BSE scare and the outbreak of foot-and-mouth disease contributed to this development.

Exchange rate. Following its launch on 1 January 1999, the euro fell by more than 20% against the US dollar but then regained some 10%. It is perceived as being under-valued. This has placed the euro-area economy in a strong position vis-à-vis its competitors, as the rise in exports and its positive contribution to gross domestic product (GDP) show.

Current-account balance and competitiveness. The euro-area’s current-account balance continued to improve in 2001 to show a small surplus. The competitiveness situation varies between Member States: in the first three years of EMU, Germany, Greece and Austria saw an improvement. Fiscal policy and structural reforms remain the only ways of preventing problems relating to competitiveness and the current-account balance from accumulating.

MACROECONOMIC POLICIES

Stability and Growth Pact. The Stability and Growth Pact sets the objective of public finance consolidation. The Member States have committed themselves to achieving budget surpluses by 2004. After 1999 the improvement in budgetary positions lost some momentum and the euro area’s budget deficit actually increased in 2001. There are still two main challenges on the fiscal policy front: eliminating fiscal imbalances in order to cope with normal cyclical fluctuations and preparing European countries for population ageing by reducing societies’ aggregate level of indebtedness.

Monetary policy. Monetary policy is now entrusted to the European Central Bank (ECB), whose primary objective, laid down by the Treaty, is price stability. According to the ECB, this stability is achieved when inflation remains below 2%. Monetary policy is based on two pillars: The first is money supply, with M3 being set at 4.5% by the ECB, while the second comprises numerous economic indicators such as cost and price indices, the exchange rate and real-economy indicators.

Interest rates. The ECB raised interest rates on several occasions in 2000 and 2001 on account of the inflationary pressures engendered by the hike in oil prices and the euro’s depreciation against the dollar. However, following developments in the world economy in 2001 and in the aftermath of 11 September, the ECB reacted quickly and lowered interest rates.

Economic policy coordination. The central element of economic policy coordination is the broad economic policy guidelines (BEPGs), which are the annual guidelines addressed to Member States by the Council of Ministers. They provide guidance with regard to both the macroeconomic and the structural spheres. The objective is to improve the EU’s economic growth potential and productivity.

The Eurogroup. The euro area has set up another coordination forum, the Eurogroup, which brings together the economics and finance ministers of the Member States that have adopted the euro. Their informal meetings take place on the eve of meetings within the Council of Ministers (“Ecofin”) and allow a frank discussion of EMU-related issues.

WAGE DEVELOPMENTS

EMU makes more evident the link between wage and employment trends. A loss of competitiveness is inevitable where the option of an exchange-rate adjustment is no longer available. Wage developments in one country in the euro area have repercussions on the area as a whole, notably via the inflation risk. The single currency increases price transparency and facilitates comparisons that may lead to “wage imitation”.

Aggregate wage developments. The fight against inflation in Europe has affected wages as wage increases are indexed to prices. The dispersion of wage growth between countries has also diminished significantly over the past decade, but it is still pronounced, and this may be justified by different productivity levels.

Unemployment rate. Despite a marked reduction in unemployment in recent years, there are few signs of a significant re-acceleration of labour cost growth in the euro area. Real wage moderation has prevailed in almost all countries of the euro area. This has borne fruit and contributed to the dynamism in job creation. The unemployment rate has fallen from 11.5% to 8.5%. The bulk of this improvement is due to a decline in structural unemployment. It is to be noted that all the major economies of the euro area still have relatively high structural unemployment.

Social pacts. In a number of countries social pacts have helped create a favourable climate by setting in train negotiations between the public authorities and the social partners, thereby helping to sustain wage moderation. The risk of conflict between companies and their workforces is much lower. Wage flexibility has become more important for the smooth functioning of EMU. Differentiated agreements or some measure of decentralisation, e.g. in the form of “opening clauses”, which take account of regional conditions or the conditions in the sector concerned or in the company concerned, have increased this flexibility.

INVESTMENT

Investment potential. The euro has clearly boosted investment potential in the euro area. First, it has eliminated the exchange-rate risk between twelve markets and has fostered competition within this integrated market. Second, financing conditions for firms have improved thanks to the faster integration of financial markets. EMU should also act as a catalyst for structural reforms in Member States, in particular on labour markets. Lastly, it has had a positive effect on interest rates via the policy of consolidating public finances.

Public and private investment. As a result of the privatisation policies pursued in the 1990s, the share of public investment in GDP has declined continuously. By contrast, business investment, in particular in information and communication technologies (ITC), has risen in recent years. The variation of investment rates between countries has been reduced considerably in the last ten years, suggesting convergence between the countries of the euro area. Since 1999, however, dispersion in investment rates has increased slightly, to some extent on account of more buoyant investment in the countries catching up.

Foreign direct investment. Foreign direct investment (FDI) was facilitated throughout the 1990s by the removal of numerous barriers as part of the process of European integration. Introduction of the euro furthered this development by eliminating exchange-rate variability and risks. Flows of FDI from and to the euro area have increased significantly, largely on account of the global expansion of firms and the associated mergers and acquisitions.

Effects of EMU. Exchange-rate volatility is a thing of the past. Thanks to policies of budgetary consolidation, short-term and long-term interest rates have been reduced. Financial, labour and product markets are expected to become even more flexible, enabling the euro area to improve investment conditions. A link exists between restrictive regulations and a poor investment rate. The euro area could, therefore, make the most of the opportunities afforded by EMU. Higher investment leads to enhanced growth potential in the euro area. This is particularly important if the adverse effects on long-term growth, such as the demographic outlook, are taken into account.

FINANCIAL SYSTEM

Overall developments. There has been a visible acceleration in the integration of financial markets in the wake of globalisation but also following the creation of a common regulatory framework and the changeover to the euro. The financial sector is experiencing a phase of rapid structural change, with integration being accompanied by general expansion and heightened competition. The exchange rate risk has disappeared, as have the costs resulting from fragmentation of the system. Market liberalisation and the introduction of the euro should facilitate business financing via calls on capital markets rather than bank financing.

Money markets. Market integration varies between segments. In the market for interbank deposits integration is virtually complete and the derivatives market is highly integrated. Against this, the secured money-market segments (private repurchase agreements, treasury bills, commercial paper and certificates of deposit, for example) remain less integrated. This state of affairs largely reflects the continuing differences between Member States’ legislation. The Collateral Directive should improve this situation.

Bond markets. With the introduction of the euro, domestic bond markets have become integrated, resulting in a substantially more homogeneous euro-denominated bond market. Greater liquidity has been reflected in higher issuance volumes. Private-sector issuance has risen sharply to the detriment of sovereign issuance as a result of the policy of fiscal retrenchment. The growing number of mergers and acquisitions as well as UMTS auctions, often financed by bond issues, have contributed to the expansion of this segment of the financial market.

Government bonds. Sovereign issuance still accounts for some 40% of total issuance. There has been marked convergence in yields between Member States. Liquidity on this market is still, however, limited as government bonds are issued by twelve separate agencies with different issuance, strategies, procedures and instruments. Overall, the euro has emerged as the second most important currency for international bond issuance, after the US dollar.

Equity markets. The introduction of the euro has stimulated demand for cross-border equity investment in euros. Investors appear to be moving increasingly towards sector-based investments, to the detriment of purely country-based investments. The changeover to the euro has also been a factor in stimulating activity in the new-economy stock markets. The response of stock exchanges in Europe to European integration has been to adopt regrouping and merger strategies.

Venture capital. Venture capital often plays a key role in the initial stages of the lifecycle of a firm. The European Union has attempted to improve access to such financing for firms, including via the Risk Capital Action Plan (RCAP). European risk capital markets remain fragmented, with the bulk of investment being undertaken domestically. This partly reflects the continuing differences in regulatory, tax and legal infrastructures in the Member States. The bursting of the stock market bubble for technological companies led to a significant fall in venture capital investment.

Financial services. The market in Europe for corporate financial services is increasingly open to global competition. Banks have responded by restructuring and reorienting activities away from traditional bank lending towards “investment banking”-style activities, which consist in creating and selling new financial products, advising clients or structuring mergers and acquisitions. Consolidation has taken place mainly within national boundaries, where there has been an increase in industry concentration. Legal differences make a pan-European product range impractical at present.

The challenges ahead. The euro is one of the main factors in speeding up integration. Financial market integration has not yet been completed and must be continued in order to take advantage of the opportunities offered by integration. Savers and investors would benefit from broader choices at lower transaction costs. This translates into higher productivity and, consequently, higher economic growth. This is why successive European Council meetings have established the integration of financial markets as a priority of economic reform. The Financial Services Action Plan (FCAP), a package of 42 initiatives, should be implemented between now and 2005. The date for implementation of the Risk Capital Action Plan (RCAP) has been set for 2003.

THE EURO AS AN INTERNATIONAL CURRENCY

The US dollar is still the leading international currency, but the euro has become the world’s second most important currency thanks to the size of the euro-area economy and to its stability, which reflects sound economic fundamentals.

International use. Prior to the introduction of euro notes and coins in 2002, the share of the euro in the invoicing of international transactions was estimated to be between 15% and 17% of the total. The US dollar remains the dominant currency for such transactions. The role of the euro as a payment currency should expand, notably at regional level. Use of the single currency for international payments has increased in the first three years and is expected to increase further following the introduction of notes and coins. The euro has become the second most important financing or investment currency. It accounts for just under 34% of transactions in these areas, and this also reflects the historically low interest rates in the euro area.

Anchor currency. Over fifty countries have tied their currencies to the euro via, among other things, managed exchange-rate arrangements or a currency board. They are located mainly in Europe and Africa, the main motivating factors being commercial and financial links and the EU accession process. The euro is also used as an intervention currency, this being closely linked to its role as an anchor currency. Most interventions are carried out under the new exchange-rate mechanism (ERM II). At present, only Denmark has tied its currency to the euro under this mechanism. Lastly, the euro is used as a store of value and is the second most important reserve currency held by central banks. In 2000 the US dollar accounted for 68% of all foreign-exchange reserves. The share of the euro has remain virtually unchanged in recent years.

Candidate countries. The candidate countries will have to take over the Community acquis and are required to participate in EMU. At the outset, they will benefit from a Treaty derogation until such time as they satisfy the convergence criteria. Before adopting the euro, they must have participated in ERM II for two years.

Global coordination. The single monetary and exchange-rate policies are the exclusive competence of the Community. As regards internal policy coordination, the Council (in this case, the Member States that have adopted the euro) decides on Community representation at international level. The Eurogroup defines common positions. Externally, as regards the International Monetary Fund (IMF) or the G7, for example, no decision has yet been taken by the Council of Ministers. The European Central Bank has been granted observer status at the IMF and within certain G7 working groups. EMU is, therefore, still in the making as regards the external side.

Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Outline of the Community (European Union) legislation about Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Regional policy > Review and the future of regional policy

Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Document or Iniciative

Council Decision 2006/702/EC of 6 October 2006 on Community strategic guidelines on cohesion [Official Journal L 291 of 21.10.06].

Summary

The strategic guidelines for cohesion policy after 2007 have two objectives:

  • to strengthen the strategic dimension of cohesion policy with a view to ensuring that Community priorities are better integrated into the national and regional development programmes; and
  • to ensure greater ownership of cohesion policy on the ground, as reflected in a reinforced dialogue in the partnerships between the Commission, the Member States and the regions and the creation of a clearer division of responsibilities between the Commission, Member States and the Parliament.

The re-launch of the Lisbon strategy

At the March 2005 European Council, the Lisbon Strategy was renewed with the adoption of the partnership for growth and jobs. In line with this strategy, cohesion policy must be focused on promoting sustainable growth, competitiveness and jobs.

The strategic guidelines identify those areas in which cohesion policy can contribute to the achievement of other Community priorities, including those deriving from the Lisbon strategy. They are also in line with the integrated guidelines for growth and jobs.

Priorities under the strategic guidelines

The strategic guidelines are focused on three priorities:

  • improving the attractiveness of regions and cities in the Member States;
  • encouraging innovation, entrepreneurship and growth in the knowledge economy; and
  • creating more and better jobs.

Strategic Guidelines for 2007-2013

On the basis of these priorities, the guidelines aim to:

  • make Europe and its regions more attractive places to invest and work;
  • improve knowledge and innovation;
  • create more and better jobs; and
  • take account of the territorial dimension of cohesion policy.

Investment and jobs

The Communication lists three groups of measures for making Europe and its regions a more attractive place to invest and work.

First, transport infrastructures must be expanded and improved. With this in mind, the Member States must give priority to the 30 projects of European interest by investing in secondary connections. In addition, better access to rail infrastructure and improved connectivity of landlocked territories to the Trans-European network (TEN-T) must be encouraged. The same applies to the environmental dimension of transport networks and the development of short-sea shipping.

Secondly, the synergies between environmental protection and growth must be strengthened so as to guarantee the sustainability of economic growth, innovation and job creation. With this in mind, the Commission recommends investing in infrastructures, creating attractive conditions for businesses and their staff and putting in place risk prevention measures. In addition, the EU’s Kyoto commitments must be taken into account.

Thirdly, traditional energy dependency must be reduced through improvements in energy efficiency and use of renewable energies.

Knowledge and innovation

The aims of growth and job creation will require a structural shift in the economy towards knowledge-based activities. To achieve this, it will be necessary to:

  • increase and improve investment in research and technological development (RTD), especially in the private sector (including through public-private partnerships (PPPs), small and medium-sized enterprises (SMEs) and cooperation among companies);
  • facilitate innovation and encourage the creation of companies with the objective of promoting a climate which promotes the production, dissemination and use of new knowledge (entrepreneurship);
  • promote the information society and the dissemination of information and communication technology (ICT) equipment to companies and households; and
  • improve access to finance by creating financial engineering mechanisms, while supporting financial instruments other than subsidies.

Jobs

To create more and better jobs, cohesion policy must aim to address the challenges highlighted in the European employment strategy. In particular, more people must be attracted into and retained in employment through the modernisation of social protection systems.

In addition, worker adaptability and labour market flexibility must be increased by investing in human capital through improvements in education and skills. In line with these priorities, the administrative capacity of public administrations and services must be increased and a healthy labour force maintained.

Territorial cohesion and cooperation

Cohesion policy must be adapted to the particular needs and characteristics of individual regions in terms of the problems and opportunities which derive from their geographical situation. The territorial dimension includes the following themes:

  • the contribution of cities (urban areas) to growth and jobs (in order to promote entrepreneurship, local employment and community development, for example);
  • supporting the economic diversification of rural areas (e.g. the synergy between structural, employment and rural development policies); and
  • cross-border, transnational and interregional cooperation focused on the aims of growth and job creation.

Related Acts

Communication from the Commission of 5 July 2005 – Cohesion Policy in Support of Growth and Jobs – Community Strategic Guidelines, 2007-2013. [COM(2005) 299 final – Not published in the Official Journal].

LISBON STRATEGY

Communication from the Commision of 12 December 2006 to the spring European Council implementing the renewed Lisbon Strategy for growth and jobs – A year of delivery. [COM(2006) 816 final – Not published in the Official Journal (only available in EN).

Communication from the Commission – Economic reforms and competitiveness: key messages from the European Competitiveness Report 2006 [COM(2006) 697 final – Not published in the Official Journal].

Communication from the Commission to the European Council (Informal meeting in Lahti – Finland, 20 October 2006) an innovation-friendly, modern Europe [COM(2006) 589 final – Not published in the Official Journal].

Communication from the Commission to the Council and the European Parliament – Common Actions for Growth and Employment: The Community Lisbon Programme [COM(2006) 30 final – Not published in the Official Journal].

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – European values in the globalised world – Contribution of the Commission to the October Meeting of Heads of State and Government [COM(2005) 525 – Not published in the Official Journal].

Communication from the Commission to the Council and the European Parliament – Common Actions for Growth and Employment: The Community Lisbon Programme [COM(2005) 330 final – Not published in the Official Journal].

Turkey – Economic and Monetary Policy

Turkey – Economic and Monetary Policy

Outline of the Community (European Union) legislation about Turkey – Economic and Monetary Policy

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Turkey – Economic and Monetary Policy

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2011) 666 final – SEC(2011) 1201 – Not published in the Official Journal].

Summary

The 2011 Report notes a robust economic recovery in Turkey. The market economy is functioning and is able to cope with competitive pressure. However, the Report regrets to report a rise in trade account deficits, and external imbalances. Some structural reform needs to be implemented.

EUROPEAN UNION ACQUIS – (according to the Commission’s words)

EU legislation on economic and monetary policy contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the Central Bank and prohibiting privileged access of the public sector to financial institutions. Upon accession, new Member States will be expected to coordinate their economic policies and will be subject to the provisions of the Stability and Growth Pact on budget monitoring matters. These States are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until their adoption of the euro, they will participate in Economic and Monetary Union as a Member State with derogation and will treat their exchange rates as a matter of common concern.

EVALUATION (according to the Commission’s words)

The economy of Turkey is currently experiencing a robust economic recovery. Public finances are improving and confidence in a lasting transformation of the country’s economic prospects and stability is increasing. Nevertheless, the rapid expansion of economic activity, driven by strong domestic demand, has led to significant and rising external imbalances that pose a threat to macroeconomic stability.

As regards the economic criteria, Turkey is a functioning market economy. It should be able to cope with competitive pressure and market forces within the Union in the medium term, provided that it accelerates the implementation of its comprehensive structural reform programme.

The economy expanded rapidly in 2010 and in the first half of 2011. Along with the high GDP growth, strong employment growth allowed for a decrease in unemployment. As a result of primarily higher cyclical revenues and a lower interest burden, the consolidation of public finances remained on track. The financial sector has shown considerable strength thanks to earlier reforms while the legal system continues to function relatively well. Moreover, the new law on State aid monitoring and the operation of the regulatory authority may increase transparency and lead to a reduction of State aid. The free interplay of market forces has been confirmed. Privatisation has accelerated. The EU remains Turkey’s most important trade partner and investor.

However, trade and current account deficits have been rising and external imbalances are now significant. Monetary policy has been only mildly successful in curbing credit growth, which along with high commodity prices, continues to feed Turkey’s growing current account deficit. More support from the fiscal side, and some specific and targeted micro-prudential measures are being elaborated, including by the banking regulator, in order to help engineering a soft landing of the economy and ease the burden placed on monetary policy. Turkey’s price and cost export competitiveness has slightly worsened. Inflation has started to rise, in large part due to pressures stemming from energy and food inputs, buoyant economic activity and hikes in administrative prices. A more resolute implementation of structural reforms is awaited. Measures to increase fiscal transparency and better anchor fiscal policy were modest, while they could help Turkey to gain credibility in the markets. Market exit remains difficult and bankruptcy proceedings are still relatively cumbersome.

Turkey has made some progress on economic and monetary policy. The Central Bank adopted a new policy mix to ensure financial stability, reducing policy rates while increasing reserve requirements for the banking sector. Turkey’s alignment with the acquis on economic and monetary policy is not complete, particularly as regards the full independence of the Central Bank and the prohibition of privileged access of the public sector to financial institutions. The overall level of preparedness is advanced.

Related Acts

Commission Report [COM(2010) 660 final – SEC(2010) 1327 – Not published in the Official Journal].
The 2010 Report presented the economic and monetary strategies adopted by the country following the international financial crisis. The authorities have also been very active in improving their economic relations at international level and cooperation with neighbouring States. However, progress was still required in aligning Turkish legislation with the acquis, particularly in the financial institutions sector.

Commission Report [COM(2009) 533 final – SEC(2009) 1334 – Not published in the Official Journal].

Commission Report [COM(2008) 674 final – SEC(2008) 2699 – Not published in the Official Journal].

The November 2008 Report highlighted the continuing problems. The Central Bank was still not totally independent and monetary financing of the public sector and privileged access of public authorities to financial markets were maintained. However, measures taken to coordinate and reform economic and monetary policy have enabled the country to progress towards a more stable macroeconomic framework.

Commission Report [COM(2007) 663 final – SEC(2007) 1436 – Not published in the Official Journal].
The November 2007 Report found that progress had been made as regards economic and monetary policy. However, certain steps had still not been taken, in particular provisions for the independence of the Central Bank. The European Commission also noted that economic policy formulation remained fragmented and often insufficiently coordinated. In general, preparations in the field of economic and monetary affairs were at an advanced stage.

Commission Report [COM(2006) 649 final – SEC(2006) 1390 – Not published in the Official Journal].
The November 2006 Report found that Turkey had made little progress as regards monetary policy but rather more in terms of economic policy. Legislation to prevent monetary financing of the public sector and to prohibit privileged access of public authorities to financial institutions was not in line with the acquis. The absence of economic impact assessments and efficient coordination and cooperation reduced the effectiveness of economic policy.

Commission Report [COM(2005) 561 final – SEC(2005) 1426 – Not published in the Official Journal].
The November 2005 Report noted some progress in the field of economic policy. Alignment on the acquis in the monetary policy field remained limited. However, the capacity to implement an effective economic and monetary policy was still held back by the lack of an effective system for coordinating formulation, cooperation and implementation.

Commission Report [COM(2004) 656 final – SEC(2004) 1201 – Not published in the Official Journal].
Its October 2004 Report found that Turkey had made no progress in adopting the EMU acquis, covering direct public-sector financing by the Central Bank, prohibition of privileged access by the public sector to financial institutions, and the independence of the Central Bank.

Commission Report [COM(2003) 676 final – SEC(2003) 1212 – Not published in the Official Journal].

In its November 2003 Report the Commission noted that no progress had been made in this field.

Commission Report [COM(2002) 700 final – SEC(2002) 1412 final – Not published in the Official Journal].
Its October 2002 Report found that no further progress had been made as regards direct public-sector financing by the Central Bank. The same was true of the prohibition on privileged access by the public sector to financial institutions and the independence of the Central Bank.

Commission Report [COM(2001) 700 final – SEC(2001) 1756 final – Not published in the Official Journal].
In its November 2001 Report the Commission found that Turkey had made progress in the adoption of the economic and monetary union (EMU) acquis.

Commission Report [COM(2000) 713 final – Not published in the Official Journal].
The Commission’s November 2000 Report found that little progress had been made in the area of economic and monetary policy.

Commission Report [COM(1999) 513 final – Not published in the Official Journal].

Commission Report [COM(1998) 711 final – Not published in the Official Journal].

Iceland – Economic and Monetary Policy

Iceland – Economic and Monetary Policy

Outline of the Community (European Union) legislation about Iceland – Economic and Monetary Policy

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Iceland – Economic and Monetary Policy

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2011) 666 final – SEC(2011) 1202 final – Not published in the Official Journal].

Summary

The 2011 Report highlights that the country’s level of alignment with the European Union (EU) acquis remains incomplete on economic and monetary policy.

EUROPEAN UNION ACQUIS – (according to the Commission’s words)

EU legislation on economic and monetary policy contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the Central Bank and prohibiting privileged access of the public sector to financial institutions. Upon accession, new Member States will be expected to coordinate their economic policies and will be subject to the provisions of the Stability and Growth Pact on budget monitoring matters. These States are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until their adoption of the euro, they will participate in Economic and Monetary Union as a Member State with derogation and will treat their exchange rates as a matter of common concern.

EVALUATION (according to the Commission’s words)

Some progress has been achieved by Iceland in the field of economic policy; however additional effort is required to improve its coordination with the EU’s policies. No new development has been noted in the field of monetary policy, the field in which alignment must be completed, particularly concerning the independence of the Central Bank and the prohibition of monetary financing of the public sector.

The country achieved a good level of alignment concerning the financial and budgetary rules. The country continued to identify the fields which still need to be aligned. Preparations connected with administrative capacity and for setting up the own resources system must be completed. A coordination structure needs to be formally established.

Croatia – Economic and monetary affairs

Croatia – Economic and monetary affairs

Outline of the Community (European Union) legislation about Croatia – Economic and monetary affairs

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Economic and monetary affairs: enlargement

Croatia – Economic and monetary affairs

acquis) and, more specifically, the priorities identified jointly by the Commission and the candidate countries in the analytical assessment (or ‘screening’) of the EU’s political and legislative acquis. Each year, the Commission reviews the progress made by candidates and evaluates the efforts required before their accession. This monitoring is the subject of annual reports presented to the Council and the European Parliament.

Document or Iniciative

Commission Report [COM(2010) 660 final – SEC(2010) 1326 – Not published in the Official Journal].

Summary

The 2010 Report presents the reforms that have advanced the general level of alignment with the acquis, despite the international financial and economic crisis. However, alignment is not complete and the policy of economic and monetary coordination should be improved.

EUROPEAN UNION ACQUIS (according to the Commission’s words)

EU legislation on Economic and Monetary Union (EMU) contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the central banks and privileged access of the public sector to financial institutions. Moreover, all Member States are bound to lay down specific measures necessary for the protection of the euro against counterfeiting. These rules must have been implemented by the date of accession. Upon accession, new Member States will be expected to coordinate their economic policies and will be subject to the provisions of the Stability and Growth Pact and the Statute of the European System of Central Banks. They are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro. Until they adopt the euro, they will participate in Economic and Monetary Union as a Member State with a derogation and will treat the exchange rate of their currency as a matter of common concern.

EVALUATION (according to the Commission’s words)

There has been further progress in the area of economic and monetary policy where, overall, alignment with the acquis is effectively complete.

The economy of Croatia has been severely affected by the global economic and financial crisis. The country fell into recession in the first quarter of 2009 and there were no clear signs of a recovery by mid-2010. Unemployment, public deficit and debt have increased significantly. External indebtedness rose further and remains a key vulnerability of the economy. Monetary stability was preserved by the policies of the central bank and the financial sector weathered the crisis relatively well.

Broad political consensus on the fundamentals of a market economy was maintained. The Economic Recovery Programme has given economic policy a medium-term orientation. The programme’s benefit for growth and international competitiveness depends on its effective implementation. Given the existing constraints, macroeconomic policy has, by and large, been appropriate to address the consequences of the global economic and financial crisis. Monetary policy succeeded to preserve exchange rate and financial stability while alleviating liquidity pressures. The current account deficit narrowed as a consequence of the recession and inflationary pressures subsided further. The banking sector remained resilient to shocks.

However, structural reforms generally advanced at a very slow pace, not least with respect to privatisation and the restructuring of loss-making enterprises. The labour market remained highly rigid, with low employment and participation rates which declined further during the recession.

In the fiscal area, the authorities made limited efforts to contain the rising deficit and to increase the efficiency of public spending. Social transfer payments remained high and not well-targeted and a large number of state-owned enterprises continued to receive State support through direct and indirect subsidies and guarantees. For achieving medium-term fiscal sustainability, it remains a key challenge to improve the budgetary process and discipline and to enhance the efficiency of public spending. The investment climate continued to suffer from a heavy regulatory burden and numerous para-fiscal taxes.

Related Acts

Commission Report [COM(2009) 533 final – SEC(2009) 1333 final – Not published in the Official Journal].

Commission Report [COM(2008) 674 final – SEC(2008) 2694 final – Not published in the Official Journal].

The 2008 Report noted significant progress and that alignment with the acquis had reached a satisfactory level in the areas of budget and finance. New regulations and procedures were necessary to increase the efficiency of public expenditure and administrative capacity.

Commission Report [COM(2007) 663 final – SEC(2007) 1431 – Not published in the Official Journal].
The 2007 Report recorded major progress in alignment with the acquis in the area of “economic and monetary affairs”. However, the Commission observed that Croatia had not yet completed the necessary alignment.

Commission Report [COM(2006) 649 final – Not published in the Official Journal].
The 2006 Report did not observe any progress in the area of monetary policy. Croatia should continue to make headway with introducing indispensable changes to its institutional and legal system, especially as regards the total independence of its Central Bank. However, in the area of economic policy, the country had made some progress in its alignment with the acquis.

Commission Report [COM(2005) 561 final – SEC(2005) 1424 – Not published in the Official Journal].
The 2005 Report observed that the country should be capable of coping with competition and market forces within the Union. Inflation was kept relatively low, the exchange rate seemed to have stabilised; the substantial deficits which existed in the public accounts and current transactions had been reduced. However, Croatia needed to take steps to consolidate public finances, notably through structural measures in the area of subsidies and transfer payments. The privatisation process speeded up in 2005. On the other hand, little progress had been made with the reorganisation of the major public companies, especially those in the energy sector. Telecoms deregulation, on the other hand, was proving a great success.

Commission Opinion [COM(2004) 257 final – Not published in the Official Journal].
In its Opinion of 20 April 2004, the Commission concluded that Croatia was a stable democracy with a functioning market economy and that it must be able to meet the demands stemming from the Community acquis in the field of economic and monetary union (EMU). The same was true of provisions on monetary financing, privileged access by public authorities to financial institutions and the protection of the euro. As regards Croatia’s participation in the third stage of EMU, the Commission took the view that it had enough time to prepare for participation as a Member State subject to a derogation.

Economic and Monetary Affairs

Economic and Monetary Affairs

Outline of the Community (European Union) legislation about Economic and monetary affairs

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs

Economic and monetary affairs

Economic and Monetary Union (EMU), as provided for in Title VII of the Treaty establishing the European Community, involves close coordination of the economic policies of the Member States at European level and requires Member States to avoid excessive budget deficits (“Stability and Growth Pact”). EMU has led to the introduction of a single currency: the euro.

Economic and Monetary Affairs Contents

  • Practical aspects of introducing the euro:The citizen and the euro, Euro notes and coins, Information strategy, Summaries, Historical aspects: from stage one to stage three (1990-1999), Brief history of Economic and Monetary Union (EMU)
  • Institutional and economic framework of the euro: EMU key institutions, Euro member countries, Relations with non-member countries, Legal status of the euro, Economic convergence
  • Stability and growth pact and economic policy coordination: Foundation and implementation of the Stability and Growth Pact, Coordination of Member States’ economic policy.
  • Economic and monetary affairs: enlargement: The impact of enlargement on the euro zone, candidate countries, the Enlargement of May 2004