# EUR-Lex - 52013DC0379 - EN

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# 52013DC0379

**Recommendation for a COUNCIL RECOMMENDATION on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro /* COM/2013/0379 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the implementation of the broad
guidelines for the economic policies of the Member States whose currency is the
euro

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 136 in conjunction
with Article 121(2) thereof, Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 5(2)
thereof,

Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November on the
prevention and correction of macroeconomic imbalances[2], and in particular Article 6(1)
thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament[4],

Having regard to the conclusions of the
European Council,

After consulting the Economic and Financial
Committee,

Whereas:

(1)       The Eurogroup has a
special responsibility in the economic governance of the euro area. The
economic crisis clearly exposed the close interrelations in the euro area,
underscoring the need for a coherent aggregate policy stance which reflects the
strong spillovers between countries whose currency is the euro, for effective
arrangements for policy coordination to swiftly respond to changes in the
economic environment.

(2)       The Member States whose
currency is the euro have committed themselves to a set of far-reaching additional
policy reforms and policy coordination by signing the Treaty on Stability,
Coordination and Governance in the Economic and Monetary Union on 2 March 2012.
The entry into force of the so called "Two Pack" regulations[5] in 2013 will further deepen budgetary and economic policy coordination within the euro area.

(3)       Work is ongoing to deepen
further the economic and monetary union. On 28 November 2012, the Commission
presented a communication on a blueprint for a deep and
genuine economic and monetary union[6]. The
blueprint identified the rationale and objectives of a genuine EMU as well as
the instruments and steps that would make it possible to reach them. The
blueprint intended to launch the European debate. On 12 September 2012, the
Commission presented a roadmap towards a Banking Union[7]. This proposal was accompanied
by a proposal for two regulations needed to establish the single supervisory
mechanism[8].
On 5 December 2012, the President of the European
Council issued a report which was developed in in close
collaboration with the President of the Commission, the President of the
Eurogroup and the President of the ECB, and which contained a specific and
time-bound road map for the achievement of a genuine Economic and Monetary
Union. It was structured around
the areas of an integrated financial-, budgetary and economic policy framework
and democratic legitimacy and accountability. On 14
December 2012, the Heads of State or Government decided on work to be taken
forward on a roadmap for the completion of EMU, recognising the interdependence
between the economies of the euro area Member States and the benefits that
stability in the euro area can bring to its members and to the European Union
as a whole.

(4)       The European Parliament
has been duly involved in the European Semester and expressed its views on the deepening
of the economic and monetary union in its resolution of 20 November 2012
“Towards a genuine Economic and Monetary Union”[9].

(5)       Crisis
management in the euro area has been characterised by strong resolve. The
commitment of all Member States and EU institutions to safeguarding the
integrity of the euro area has been clearly put beyond question. However, the
effectiveness of euro area governance as well as the conduct of crisis
management by the Eurogroup need to be further improved to fully ensure
effective coordination at the euro area level. Strengthened coordination is
also needed to arrive at a coherent aggregate policy stance in the euro area
and to ensure that the necessary policy measures are implemented. Achieving
these goals will bolster the confidence of citizens and markets, and thereby
contribute to economic recovery and financial stability in the euro area.

(6)       The implementation of
two-pack will further strengthen budgetary surveillance in the euro area. The
two-pack legislation assigns a role to the Eurogroup in discussing the draft
budgets of individual Member States as well as the budgetary prospects for the
euro area as a whole in view of ensuring an appropriate overall fiscal stance.
These discussions take place on the basis of the Commission's opinions of the
draft budgetary plans of the euro area Member States and the of the overall euro
area assessment by the Commission of the draft budgetary plans and their
interaction. For fiscal consolidation across the euro area, the challenge is to put the debt-to-GDP ratio on a steadily
declining path over time. This can be done by pursuing differentiated, growth-friendly
fiscal consolidation policies while boosting the growth potential of the euro
area. The corrective arm of the Stability and Growth
Pact foresees budgetary adjustment as defined in structural terms taking into
account cross-country country differences in risks to sustainability, both in
short and medium term, and allows the automatic stabilisers to function along
the adjustment path. The preventive arm of the Stability and Growth Pact
foresees a gradual adjustment towards the Medium Term Objectives with the
annual structural improvement of 0.5% as a benchmark. This can be modulated on
a country specific basis taking into account cyclical conditions and debt
sustainability risk. The credibility of fiscal policy over the medium-term
would be reinforced by if the composition of government expenditure and
revenues better reflecting the growth impact of the different spending items
and revenue sources. Furthermore, the growth potential of the economy can be
enhanced by further structural reforms and by exploiting available budgetary
margins to foster public investment in the euro area, using the scope provided
by the Stability and Growth Pact.

(8)       Most risk indicators
related to EU financial markets as well as market sentiment improved compared
to 2012 as the intensity of self-fulfilling and destructive confidence spirals
has dissipated. However, significant market fragmentation remains. Improved
funding conditions for banks are yet to feed through to a pick-up of credit for
the real economy and significant differences persist across Member States as regards
bank lending activity and cost of funding to the private sector. Facilitating an orderly deleveraging of both the
banking sector and the non-financial private sector while sustaining the flow
of new credit for productive uses in the real economy and particularly SMEs, are
the key challenge at the current conjuncture.

(9)       Further repairing banks' balance sheets and continuing the
strengthening of equity buffers, where needed, would contribute to repairing
the credit channel. In this
context, asset quality reviews and stress tests by the SSM and EBA will provide
transparency of banks' balance sheets, help identify any remaining pockets of
vulnerability, and hence reinforce confidence in the sector as a whole. The risk of further financial-market fragmentation and financial
turmoil illustrates the importance for the euro area of rapidly moving ahead
with the creation of the Banking Union while avoiding ad hoc approaches to bank
resolution.

(10)     Structural reforms are needed across the euro
area to improve the functioning of product and labour markets in order to promote competitiveness, to strengthen the ongoing adjustment
process and to guarantee a sustainable reallocation of resources. Moreover, structural
reforms play an essential role in facilitating the rebalancing and deleveraging
process. For deficit countries, competitiveness gains will increase net
exports, which help in rebalancing the growth pattern towards more productive,
less labour-intensive tradable sectors, while supporting economic recovery and
bringing down debt ratios. At the same time, reforms to improve competition in
countries with a current account surplus could contribute to the reallocation
of resources and help boosting investment in non-tradable sectors. This would
strengthen the role of domestic demand in the composition of growth making the
adjustment in the euro area more symmetric. At the same time, the crisis had largely asymmetric effects on euro-area Member States’
employment, with countries most hit being those with the most severe
compression of domestic demand linked to current account reversals. In the
absence of an effective and quick absorption of cyclical unemployment,
hysteresis effects, whereby unemployment becomes entrenched and less sensitive
to wage dynamics, may materialise. Structural reforms
in the labour market therefore remain of particular importance to mitigate risks for social cohesion and future growth potential in the
euro area. By signing the Treaty on Stability,
Coordination and Governance in the Economic and Monetary Union, on 2 March
2012, the euro area Member States committed themselves to coordinating ex ante
their national plans for major economic reforms. The
impact of the measures already adopted should be monitored by the Eurogroup,
with a view of encouraging further action where necessary, and to step up the ambition
of reforms in line with the country specific recommendations.

HEREBY RECOMMENDS that euro area
Member States take action, individually and collectively, without prejudice to
the competences of the Council as regards the coordination of economic policies
of the Member States, but in particular in the context of economic policy
coordination in the framework of the Eurogroup, within the period 2013-2014 to:

1.           Take
collective action in the Eurogroup to ensure a coherent policy stance across
the euro area, and to deliver the necessary policy decisions which are needed
to ensure the good functioning of the euro area. Allow the Eurogroup to play a
central role in the strengthened surveillance framework applicable to euro area
Member States to coordinate and monitor reforms at national and at the euro
area level that are necessary for a stable and robust euro area and to ensure
policy coherence.

2.           Ensure that the Eurogroup monitors and coordinates fiscal policies of the euro
area Member States and the implied aggregate fiscal stance for the euro area as
a whole to ensure a growth
friendly and differentiated fiscal policy. To this end the Eurogroup should discuss the Commission opinions of
the draft budgetary plans of each of the euro area Member States, and the
budgetary situation and prospects for the euro area as a whole on the basis of
the overall assessment by the Commission of the draft budgetary plans and their
interaction. The coordination shall contribute to ensuring that the pace of
fiscal consolidation is differentiated according to the fiscal and economic
situation of the euro area Member States with the budgetary adjustment defined
in structural terms, allowing the automatic stabilisers to function along the
adjustment path and that, in view of reinforcing the credibility of fiscal
policy over the medium term, fiscal consolidation is supported by an overall efficient and growth-friendly
mix of expenditure and revenue and by appropriate structural reforms which
enhance the economic growth potential.

3.           Assess, in the framework
of the Eurogroup, the reasons behind the differences in lending rates
especially to SMEs across the euro area Member States; explore the consequences
of the fragmentation of the financial markets in the euro area and advise on
ways to overcome it.

4.           Building on the
recapitalisation and the restructuring of the past years, promote further balance-sheet repair among banks as a means to
reverse fragmentation in the single market and improve the flow of credit to
the real economy, particularly SMEs. To this end: (a) ensure that the balance
sheet assessments and stress tests to be conducted by the Single Supervisory
Mechanism (SSM) in co-operation with the European Banking Authority (EBA) are
concluded in accordance with the agreed timeline; (b) ensure a level playing
field in applying burden-sharing requirements in the recapitalisation of banks;
(c) put in place credible fiscal backstops for possible recapitalisation of
banks ahead of balance sheet assessments and stress; (d) remove supervisory
incentives for banks to match asset and liabilities within national borders;
and (e) accelerate the necessary steps to establish the Banking Union,
comprising the SSM, a single resolution mechanism, a capacity for bail-in, a
common resolution fund and a common fiscal backstop including the possibility
for direct recapitalisation of financial institutions.

5.           Coordinate ex ante the
major economic reform plans of the Member States whose currency is the euro. Monitor the implementation of structural
reforms, notably in the labour and product markets and assess their impact on the euro area,
taking into account the Council recommendations to individual euro area Member
States. Promote further adjustment in the euro area,
ensuring that it proceeds in a balanced and structural way, by following
thoroughly the reforms that address
distortions to saving and investment behaviour in Member States with both
current account deficits and surpluses. Take the necessary steps for an effective implementation of the
Macroeconomic Imbalances Procedure, notably by assessing progress in
reform commitments in Member States experiencing excessive imbalances and in
reform implementation in Member States with imbalances requiring decisive
action to limit negative spillovers to the rest of the euro area.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ L 306, 23.11.2011, p. 25.

[3]               COM(2013) 379 final

[4]               P7_TA(2013)0052 and P7_TA(2013)0053.

[5]               COM(2011)821 final and COM(2011)819 final.

[6]               COM(2012) 777 final.

[7]               COM(2012) 510 final.

[8]               COM(2012) 511 final and COM(2012) 512 final.

[9]               The resolution of 20 November 2012 “Towards a genuine
Economic and Monetary Union”, see P7_TA(2012)0430.