COMMUNICATION FROM THE COMMISSION A roadmap to stability and growth
Date: 2011-10-12
Institutions: European Commission
Subjects: Economic and Monetary Union, Greece, anti-crisis plan, balance of payments assistance, banking supervision, coordination of EMU policies, economic stabilisation, financial institution, regulation of transactions, special tax

EUROPEAN COMMISSION 

Brussels, 12.10.2011 
COM(2011) 669 final 

COMMUNICATION FROM THE COMMISSION 

A roadmap to stability and growth 

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"We reaffirm our commitment to the Euro and to do whatever is needed to ensure the 
financial stability of the Euro area as a whole and its Member States." 

(Statement by the Heads of State or Government  
of the Euro area and EU institutions, 21 July 2011) 

INTRODUCTION 

What the EU most needs now is to deploy all the necessary means to deliver future stability 
and growth at once and to the full. Many far reaching decisions have been made in the past 
eighteen months. In order to restore confidence in the Euro area and the EU as a whole, these 
decisions  need  to  be  integrated  and  completed.  The  crisis  threatens  to  become  systemic.  A 
solution to break the vicious circle between doubts over the sustainability of sovereign debt, 
the stability of the banking system and the EU's growth prospects is more necessary than ever. 
The elements presented in this paper are interdependent and must be implemented together as 
quickly as possible to have their intended effect. No single element by itself will be sufficient 
to  resolve  the  current  crisis.  Only  taken  together  and  simultaneously  will  they  convincingly 
demonstrate that the EU can: 

1. Give a decisive response to the problems of Greece 

2. Enhance the Euro area's backstops against the crisis  

3. Strengthen the banking system, namely through recapitalisation 

4. Frontload stability and growth enhancing policies 

5. Build a more robust and integrated economic governance 

1. 

A DECISIVE RESPONSE TO THE PROBLEMS OF GREECE 

The  continuing  doubts  over  Greece  have  contributed  very  significantly  to  undermining 
confidence in the financial stability of the Euro area as a whole. They must be immediately 
and definitively removed.  

Subject to the assessment of the EU/ECB/IMF troika, this will require: 

• 

• 

Provided the current programme is back on track, disbursement of the payment 
of the sixth tranche of the programme for Greece. 

Deciding  a  sustainable  solution  for  Greece  within  the  Euro  area,  through  an 
effective second adjustment programme, based on adequate financing through 
private  sector  involvement  (PSI)  and  the  public  sector,  leaning  on  robust 
implementation and monitoring mechanisms. 

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• 

Continued support from the Commission Task Force on Greece, underpinning 
full and timely implementation of the programme and channelling the available 
structural funds to strengthen competitiveness and return to growth. 

2. 

ENHANCING THE EURO AREA'S BACKSTOPS AGAINST THE CRISIS 

As  recently  as  21  July  2011,  the  Heads  of  State  or  Government  of  the  Euro  area  and  EU 
institutions  have  reaffirmed  the  determination  to  continue  to  provide  support  to  countries 
under  programmes  until  they  regain  market  access,  provided  they  successfully  implement 
those  programmes.  They  emphasised  that  as  far as  private  sector  involvement  is  concerned, 
Greece requires an exceptional and unique solution. 

The Euro area must be fully equipped with the instruments needed to meet any future crisis 
scenarios.  The  availability  of  the  necessary  instruments  would  widen  the  spectrum  for 
alternative solutions while providing much needed reassurance to market participants. Recent 
decisions  to  create  the  EFSF  and  ESM  have  gone  a  long  way  towards  building  these 
instruments but they still need to be completed and complemented.  

The first step is to make rapidly operational the decisions taken by the Euro area summits in 
March and on 21 July 2011 to increase the flexibility and effectiveness of the EFSF (and the 
ESM) in particular with regard to: 

• 

• 

• 

Precautionary  programmes.  Access  to  such  channels  should  be  conditional 
upon  requesting  Member  States  agreeing  to  graduated  macro-economic 
adjustment  programmes,  on  which  there  should  be  prior  consultation  of  the 
Commission and the ECB. Stronger monitoring and surveillance is needed and 
could  be  agreed  politically  and  included  in  the  Code  of  Conduct  on  the 
Stability and Growth Pact. 

Assisting  Member  States  with  the  banking  recapitalisation  process  through 
loans to non programme countries, as a complement to private sector solutions 
and national means where necessary. 

Improving  the  capacity  of  the  EFSF  to  intervene  by  purchasing  government 
debt  in  primary  markets  and  to  intervene  in  secondary  markets  where 
exceptional  market  circumstances  and  risks  to  financial  stability  exist,  under 
appropriate conditionality. 

Moreover, the firepower of the backstop mechanisms should be enhanced by maximising the 
use of the EFSF, without increasing the guarantees underpinning it and within the rules of the 
Treaty of Lisbon, in particular on monetary financing.  

Early  introduction  of  the  ESM  would  also  reinforce  confidence  in  the  crisis  resolution 
mechanism and bring the advantages of a more robust, permanent instrument. Efforts should 
be made to accelerate the technical preparation and ratification procedures to have the ESM 
operational by, for example, mid 2012. 

The ECB plays a crucial role in securing the financial stability of the Euro area as a whole by 
ensuring  sufficient  liquidity  for  the  Euro  area  banking  sector  and  supporting  the  proper 
functioning of sovereign bond markets while preserving price stability.  

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3. 

STRENGTHENING THE BANKING SYSTEM, NAMELY THROUGH RECAPITALISATION 

Both in regulatory and financial terms huge efforts have been deployed to strengthen Europe's 
banks  given  their  role  in  the  stability  and  functioning  of  our  economy.  .  Banks  have  also 
considerably improved the quality and quantity of their capital base.  

The EU has overhauled the way banks are supervised and has taken legislative  measures to 
increase  the  amounts  of  regulatory  capital  banks  have  to  hold,  to  address  risky  re-
securitisation operations, to ensure remuneration policies do not encourage excessive risk, and 
to increase protection of citizens' bank deposits up to a present threshold of €100 000. Swift 
adoption of CRD IV will establish a robust capital ratio for banks and implement the Basel III 
standards. 

Ongoing  uncertainty  in  the  sovereign  debt  markets  has  led  to  increasing  volatility  and  is 
putting the banking sector under mounting pressure. For the foreseeable future, efforts need to 
focus on facilitating banks' access to term liquidity in particular restoring long term liquidity 
in the sector, accompanied by steps to strengthen the capital of banks that need it.  

To restore confidence in the EU banking sector, a coordinated, targeted recapitalisation effort 
is needed, in conjunction with the other elements of this strategy. This requires the combined 
efforts of Member States, the European Banking Authority (EBA) and the European Central 
Bank alongside the Commission. A bank recapitalisation strategy following the work of the 
EBA should include the following elements: 

• 

• 

• 

• 

• 

Covering  all  potentially  systemic  banks  across  all  Member  States  –  i.e.  the 
banks  that  were  covered  by  EBA's  July  2011  stress  tests,  excluding  some 
smaller domestic banks with no international activities. 

Accounting  for  all  exposures  to  EU  sovereign  debt  of  the  banks  concerned 
(prudent  valuation of  all  sovereign  debt,  whether  in  the  banking  book  or  the 
trading book) to ensure full transparency on asset quality. 

Requiring  a  temporary  significantly  higher  capital  ratio  of  highest  quality 
capital after accounting for exposure. The definition of capital broadly equates 
to the definition set out by the Basel III international agreement for attainment 
in 2015. 

Banks  that  do  not  retain  the  necessary  capital  should  present  recapitalisation 
plans  and  implement  them  as  swiftly  as  possible.  In  practical  terms,  national 
supervisors  should  set  these  requirements  through  their  existing  supervisory 
powers  in  the  form  of  additional  buffers  which  prevent  the  distribution  of 
dividends or bonuses pending the recapitalisation. 

Banks  should  first  use  private  sources  of  capital, 
through 
restructuring  and  conversion  of  debt  to  equity  instruments.  If  necessary  the 
national  government  should  provide  support,  and  if  this  support  is  not 
available,  recapitalisation  should  be  funded  via  a  loan  from  the  EFSF.  Any 
recapitalisation from public sources should be compatible with the EU state aid 
rules. The Commission intends to extend the applicability of the existing state 
aid framework for bank support beyond 2011. 

including 

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At the same time, the on-going work on a new system of regulation for the financial sector 
needs  to  be  completed  as  swiftly  as  possible.  The  Commission  will  deliver  the  remaining 
proposals  by  the  end  of  this  year,  namely  reinforced  rules  on  credit  rating  agencies, 
transparency  and  market  conduct  on  all  trading  platforms,  a  strengthened  framework  to 
combat  market  abuse,  including  criminal  sanctions  and  a  European  framework  on  bank 
resolution.  It  will  be  essential  to  ensure  swift  adoption  of  all  these  proposals  by  the  co-
legislators, ideally within 12 months of their presentation by the Commission.  

The proposed Financial Transaction Tax should be adopted equally quickly on the EU level 
as  a  means  to  ensure  that  the financial sector contributes  fairly to  recovery. The  EU should 
continue to advocate its adoption at the global level. 

4. 

FRONTLOADING STABILITY AND GROWTH ENHANCING POLICIES 

Most Member States do not have room for a new fiscal stimulus because they need to give top 
priority  to  fiscal  consolidation.  We  need  to  focus  on  implementing  the  country  specific 
recommendations made under the first European semester and on prioritising public spending 
on growth areas, removing obstacles and tapping into underutilised potential. Member States, 
in particular those experiencing tensions in sovereign debt markets, should commit to stronger 
growth enhancing structural reforms. 

We have several structural growth levers to hand at EU level – getting more out of the single 
market, maximising our trade performance and exploiting the potential of recently concluded 
trade  agreements  are  just  some  of  the  elements.  Moreover,  the  current  crisis  shows  that  we 
have to mainstream competitiveness into EU policies. Particular gains can be obtained from 
actions focused on technology sectors with  high growth potential through  development  of  a 
digital single market.  

A targeted boost to growth and employment could be achieved by the following: 

• 

Getting more out of what has already been agreed at EU level, for example: 

• 

• 

• 

• 

Full implementation of the Services directive 

Completion  of  the  integrated  market  for  energy  which  would  give 
consumers  choice  between  suppliers  and  make  markets  fully  accessible 
for energy providers. 

Implementation of the late payments directive should be advanced from 
March 2013 to January 2012, in order to help SMEs 

Full implementation of the Free Trade Agreement with Korea  

• 

Accelerating adoption of what is pending in co-decision:  

• 

The  proposed  unitary  European  patent  protection  valid  in  25  Member 
States would lead to an estimated 80% reduction in costs for companies. 

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• 

• 

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The pending revision of the directive on annual accounts would simplify 
reporting  requirements  in  particular  through  exemptions  for  micro 
enterprises  

Increasing  co-financing  rates  for  Structural  Funds  in  programme 
countries as proposed would enable the rapid mobilisation of EU funds in 
support of growth. 

The proposed energy savings directive would promote more efficient use 
of energy  

Concluding  the  further  trade  agreements  which  are  underway  with  key 
strategic partners. 

Adopting  the  proposals  on  savings  tax  and  other  tax  initiatives  already 
presented. 

Giving the Commission the mandate to negotiate tax agreements for the 
whole  EU  with  third  countries  to  effectively  fight  tax  evasion  whilst 
avoiding double taxation. 

• 

Adopting the optional Common European Sales Law 

• 

Fast-track  future  proposals  that  the  Commission  will  propose  in  the 
coming months, including:  

• 

The twelve proposals of the Single Market Act including: 

– 

– 

– 

Facilitating access to venture capital across Europe through an EU 
passport 

Providing  a  common  legal  base  for  mutual  recognition  of  e- 
authentication and electronic signature across borders. 

Revising  the  public  procurement  framework  to  provide  simpler 
rules and more transparent procedures. 

• 

Other proposals: 

– 

– 

A  Young  Opportunities  initiative  to  boost  youth  employment,  in 
particular access to a first job. 

Collective  rights  management/copyright  law  to  create  a  single 
market for copyright – it is estimated that this could treble on line 
music sales. 

Where it proves difficult to find agreement on fast tracked proposals the use of enhanced co-
operation should be envisaged. 

This  should  be  complemented  by  targeted  investment  at  the  EU  level.  Next  week  the 
Commission will launch the Europe 2020 Project Bond Initiative by proposing a pilot phase 

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during the current financial framework. That way, we will be able to expand the investor base 
for funding some of the major infrastructure investments the EU and the Single Market need. 
The  initiative  will  be  developed  further  in  the  Commission's  proposal  for  the  Connecting 
Europe Facility under the next Multi-annual financial framework. The Union and its Member 
States should also urgently consider how to allow our policy-driven bank, the EIB, to do more 
to  finance  longer  term  investment,  including  through  the  use  of  innovative  financing 
instruments. To do so, the Commission will explore ways to reinforce the EIB's resources and 
capital base so that it can lend to the real economy.  

5. 

BUILD ROBUST AND INTEGRATED ECONOMIC GOVERNANCE FOR THE FUTURE 

Fundamentally, the restoration of stability and sustainable economic growth in the Euro area 
and the wider EU can only be achieved by the pursuit of sound policies at the national level, 
in the context and under the guidance of the appropriate Community governance. This must 
come  from  a  reinforced  commitment  among  Member  States  to  restore  and  reinforce  public 
debt  sustainability  via  an  appropriate  combination  of  budgetary  consolidation  and  growth-
enhancing  structural  reforms.  The  European  Semester  and  the  new  "six-pack"  legislation 
already  provide  a  strong  governance  framework  which  needs  to  be  strengthened  further, 
including in its Community dimension. There should be a stronger Euro-area dimension in the 
planning, implementation and ex-post assessment of Member State policies to ensure stronger 
economic  policy  co-ordination,  based  on  surveillance  procedures  that  become  increasingly 
tighter  (i.e.  imply  greater  constraints  on  national  budgets  and  economic  policies),  thereby 
entailing  a  greater  integration  and  discipline  of  economic  policy  responsibility  at  the  Euro-
area level, through rules that cannot be broken. In this context, the further reinforcement of 
the  role  of  the  commissioner  responsible  for  economic  and  monetary  affairs  will  also  be 
considered. The Commission has announced that it intends to work towards a single, coherent 
framework  for  better  economic  governance  on  the  basis  of  the  Community  method.  It  will 
make the necessary proposals to that effect. 

In keeping with the decisions of the Euro area summit on 21 July 2011 the President of the 
European  Council,  in  close  consultation  with  the  President  of  the  Commission  and  the 
President  of  the  Eurogroup,  will  make  concrete  proposals  on  how  to  improve  working 
methods and enhance crisis management in the Euro area, namely through a more streamlined 
process between the Euro area summit, the Eurogroup and the Euro area working group.  

In addition, to deliver better economic governance for the future we need to: 

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Implement  the  "six-pack"  as  soon  as  possible  including  through  stronger 
preventive  and  corrective  tools  under  the  Stability  and  Growth  Pact 
(deficit/debt  criteria)  and  by 
the  new  macro-economic 
imbalances procedures (Excessive Imbalances Procedure). 

implementing 

Strengthen the European Semester of economic policy coordination to intensify 
surveillance of economic and fiscal policies, including by integrating the Euro 
Plus Pact into its procedures. 

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Even though rapid and strict implementation of the new "six-pack" will be challenging there 
is a need to go further by: 

• 

Setting  out  provisions  for  strengthening  the  economic  and  budgetary 
surveillance  of  Euro  area  Member  States  requesting  or  receiving  financial 
assistance  from  the  EFSF,  ESM,  IMF  or  another  IFI.  The  Commission  will 
make a proposal to the Council and the European Parliament under Article 136. 

deficit 

•  Monitoring  the  national  budgetary  policies  of  Euro  area  Member  States  in 
excessive 
a 
procedure/programme 
Commission/Council  procedure  which  would  enable  the  Commission/Council 
to intervene, for example to examine national draft budgets ex-ante, to request 
a second reading in serious cases, to suggest amendments in the course of the 
year  and  to  monitor  budgetary  execution.  The  Commission  will  make  a 
proposal to the Council and the European Parliament under Article 136 setting 
out the graduated steps and conditions that should apply in such cases. 

countries 

through 

• 

• 

In keeping with stronger internal governance of the Euro area there is a need to 
move  towards  more  unified  external  representation  for  the  Euro  area.  The 
Commission will make proposals on steps to achieve this. 

Assessing and developing options for "stability bonds" as part of the arsenal of 
policy  instruments  for  the  Euro  area  within  the  further  reinforced  economic 
governance. The Commission will publish a Green Paper on the main options 
before the end of the year. 

In order to speed up the delivery of better economic governance, enhanced cooperation should 
be  envisaged  in  all  cases  where  otherwise  decisions  would  be  kept  pending  for  a  longer 
period. 

Finally, it may be appropriate to enshrine some or all of these steps in the formal framework 
of  a  Treaty  revision.  This  would  not  serve  as  an  immediate  response  to  the  current  crisis 
which  must  be  addressed  through  the  swift  and  decisive  implementation  of  the  measures 
presented  in  this  Communication.  Once  this  has  been  done,  Treaty  changes  could  be 
envisaged to consolidate and give even greater impact to the new Community architecture that 
is  now  being  put  in  place  via  secondary  legislation.  Treaty  change  may  also  be  helpful  to 
ensure the coherence of deeper integration within the Euro area with the Union as a whole, in 
particular the Single Market. 

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