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Economic and monetary union

02-07-2020

Launched almost three decades ago, economic and monetary union (EMU) represents a very important step in the process of European economic integration. However, the recent sovereign debt crisis highlighted its incomplete design and some inherent instabilities. A series of measures were therefore taken to deepen EMU and thereby to increase its resilience. They can be grouped in three main categories: monetary measures, measures intended to complete the single market, and measures aimed at strengthening ...

Launched almost three decades ago, economic and monetary union (EMU) represents a very important step in the process of European economic integration. However, the recent sovereign debt crisis highlighted its incomplete design and some inherent instabilities. A series of measures were therefore taken to deepen EMU and thereby to increase its resilience. They can be grouped in three main categories: monetary measures, measures intended to complete the single market, and measures aimed at strengthening the economic union dimension of EMU. The current coronavirus pandemic has shown the urgency of many of them; recently submitted important proposals could lead to a noteworthy evolution in the architecture of EMU. This Briefing groups and highlights some of these proposals. The table at the end features a number of additional proposals in summary form.

Developing a pandemic emergency purchase programme: Unconventional monetary policy to tackle the coronavirus crisis

27-04-2020

The Treaty on the Functioning of the European Union specifies the maintenance of price stability in the euro area as the primary objective of EU single monetary policy. Subject to that, it should also contribute to the achievement of the Union's objectives, which include 'full employment' and 'balanced economic growth'. Responsibility for monetary policy conduct is attributed to the Eurosystem, which carries out its tasks through a set of standard instruments referred to as the 'operational framework ...

The Treaty on the Functioning of the European Union specifies the maintenance of price stability in the euro area as the primary objective of EU single monetary policy. Subject to that, it should also contribute to the achievement of the Union's objectives, which include 'full employment' and 'balanced economic growth'. Responsibility for monetary policy conduct is attributed to the Eurosystem, which carries out its tasks through a set of standard instruments referred to as the 'operational framework'. To tackle the financial crisis, the Eurosystem has complemented its regular operations by implementing several non-standard monetary policy measures since 2009. The first strand of these measures had the primary objective of restoring the correct functioning of the monetary transmission mechanism by supporting certain distressed financial market segments, playing an important role in the conduct of monetary policy. A second strand of non-standard measures was aimed at sustaining prices and fostering economic growth by expanding the size of the Eurosystem balance sheet through massive purchases of eligible securities, including public debt instruments issued by euro-area countries. Net purchases were conducted between October 2014 and December 2018, after which the Eurosystem continued to simply reinvest repayments from maturing securities to maintain the size of cumulative net purchases at December 2018 levels. Due to prevailing conditions, however, in September 2019, the European Central Bank (ECB) Governing Council decided to recommence net purchases in November of the same year 'for as long as necessary to reinforce the accommodative impact of its policy rates'. The spread of the coronavirus in early 2020 has impaired growth prospects for the global and euro-area economies and made additional monetary stimulus necessary. In this context, the ECB has increased the size of existing asset purchase programmes, and launched a temporary, separate and additional pandemic emergency purchase programme (PEPP).

Joint debt instruments: A recurrent proposal to strengthen economic and monetary union

02-04-2020

The idea of issuing joint debt instruments, in particular between euro-area countries, is far from new. It has long been linked in various ways to the Union's financial integration process and in particular to the implementation of economic and monetary union. In the first decade of the euro, the rationale for creating joint bonds was to reduce market fragmentation and thus obtain efficiency gains. Following the financial and sovereign debt crises, further reasons included managing the crises and ...

The idea of issuing joint debt instruments, in particular between euro-area countries, is far from new. It has long been linked in various ways to the Union's financial integration process and in particular to the implementation of economic and monetary union. In the first decade of the euro, the rationale for creating joint bonds was to reduce market fragmentation and thus obtain efficiency gains. Following the financial and sovereign debt crises, further reasons included managing the crises and preventing future sovereign debt crises, reinforcing financial stability in the euro area, facilitating transmission of monetary policy, breaking the sovereign-bank nexus and enhancing the international role of the euro. While joint debt instruments present considerable potential advantages, they also present challenges. These include coordination issues and reduced flexibility for Member States in issuing debt, the potential to undermine fiscal discipline by removing incentives for sound budgetary policies, and the fact that adoption of joint debt instruments would eventually entail the difficult political choice of transferring sovereignty from the national to the EU level. In the context of the current crisis caused by the COVID-19 pandemic, joint debt instruments have once more come to the fore as a potential medium-term solution to help Member States rebuild their economies following the crisis. In Eurogroup and European Council meetings, the solution is not favoured by all Member States and alternative – possibly complementary – approaches have been proposed, such as a credit line through the European Stability Mechanism.

The ‘general escape clause’ within the Stability and Growth Pact: Fiscal flexibility for severe economic shocks

27-03-2020

An important element of the response to the COVID-19 pandemic will come from European Union (EU) Member States in the form of fiscal intervention. At the same time, Member States are constrained by the fiscal rules in place at both EU and national level. The Stability and Growth Pact contains two clauses allowing Member States to undertake appropriate budgetary measures, within the Pact, in the face of exceptional circumstances. The first is known as the 'unusual events clause', while the second ...

An important element of the response to the COVID-19 pandemic will come from European Union (EU) Member States in the form of fiscal intervention. At the same time, Member States are constrained by the fiscal rules in place at both EU and national level. The Stability and Growth Pact contains two clauses allowing Member States to undertake appropriate budgetary measures, within the Pact, in the face of exceptional circumstances. The first is known as the 'unusual events clause', while the second is termed the 'general escape clause'. In essence, the clauses allow deviation from parts of the Stability and Growth Pact's preventive or corrective arms, either because an unusual event outside the control of one or more Member States has a major impact on the financial position of the general government, or because the euro area or the Union as a whole faces a severe economic downturn. As the current crisis is outside governments' control, with a major impact on public finances, the European Commission noted that it could apply the unusual events clause. However, it also noted that the magnitude of the fiscal effort necessary to protect European citizens and businesses from the effects of the pandemic, and to support the economy in the aftermath, requires the use of more far-reaching flexibility under the Pact. For this reason, the Commission has proposed to activate the general escape clause. With the Council having endorsed the Commission communication, a deviation from the medium-term budgetary objective or from the appropriate adjustment path towards it may be allowed for Member States, during both the assessment and the implementation of Stability or Convergence Programmes. In the corrective arm of the Pact, the clause will allow an extension of the deadline for the Member States to correct their excessive deficits under the excessive deficit procedure, provided those Member States take effective action as recommended by the Council.

What can the EU do to alleviate the impact of the coronavirus crisis?

16-03-2020

The novel coronavirus (COVID-19) outbreak has now been declared a pandemic by the World Health Organization. Alleviating the human effects of the crisis is paramount, but repercussions are being felt across many sectors. European Union institutions are unanimous in calling for solidarity among Member States, and for Europe to offer support, within its remit, to its Member States in their response to the common challenge. On 10 March 2020, Heads of State or Government of the EU countries held a videoconference ...

The novel coronavirus (COVID-19) outbreak has now been declared a pandemic by the World Health Organization. Alleviating the human effects of the crisis is paramount, but repercussions are being felt across many sectors. European Union institutions are unanimous in calling for solidarity among Member States, and for Europe to offer support, within its remit, to its Member States in their response to the common challenge. On 10 March 2020, Heads of State or Government of the EU countries held a videoconference on COVID-19, to discuss how to coordinate the EU-level response. EU leaders stressed the need for a joint European approach and close coordination with the European Commission. Priorities were identified, to be followed up on 'at all levels immediately'. The measures that are – or could be – envisaged range across different policy areas. As an immediate response, European Commission President Ursula von der Leyen formed a coronavirus response team. Further measures were announced in a European coronavirus response on 13 March 2020. Planned – and potential – health and preparedness measures include reinforcing the EU's role in joint procurement, bolstering cooperation in disease management and control, and potentially widening the remit of the European reference networks. Greater controls on people crossing external EU borders are also proposed. Monetary, budgetary and macroeconomic measures include, for instance, those taken to ease the impact of the coronavirus emergency on the aviation industry. Moreover, the EU and the Member States, the European Central Bank, and the International Monetary Fund can also take steps to help people and firms. The EU budget has been mobilised to provide funds to reinforce preparedness and containment measures, as well as research into the virus. Furthermore, cross-border health threats, such as that posed by COVID 19, could be taken into account when shaping the multiannual financial framework for 2021-2027.

European Semester 2020 – Employment aspects

05-03-2020

The European Semester sets a timetable and framework for EU countries to discuss economic policy coordination. The European Parliament Committee on Employment and Social Affairs (EMPL) adopted its report on the employment and social aspects in the 2020 Annual Sustainable Growth Survey on 20 February 2020. Parliament is expected to discuss an own initiative resolution at the March I plenary part-session.

The European Semester sets a timetable and framework for EU countries to discuss economic policy coordination. The European Parliament Committee on Employment and Social Affairs (EMPL) adopted its report on the employment and social aspects in the 2020 Annual Sustainable Growth Survey on 20 February 2020. Parliament is expected to discuss an own initiative resolution at the March I plenary part-session.

Economic impact of epidemics and pandemics

27-02-2020

Despite significant medical progress over the last centuries, infectious diseases such as influenza or malaria still represent a considerable threat to society. While some are endemic to specific geographical regions, others can spread, becoming epidemics or pandemics, as is the case with the coronavirus crisis currently developing. While the first and most crucial aspect of an epidemic is, and will always remain, the loss of human life, the spread of a virus can also have important repercussions ...

Despite significant medical progress over the last centuries, infectious diseases such as influenza or malaria still represent a considerable threat to society. While some are endemic to specific geographical regions, others can spread, becoming epidemics or pandemics, as is the case with the coronavirus crisis currently developing. While the first and most crucial aspect of an epidemic is, and will always remain, the loss of human life, the spread of a virus can also have important repercussions for national or regional economies. The evidence reported in various studies indicates that epidemic disease impacts on a country's economy through several channels, including the health, transportation, agricultural and tourism sectors. At the same time, trade with other countries may also be impacted, while the interconnectedness of modern economies means that an epidemic can also implicate international supply chains. These considerations, as well as the fact that rapid urbanisation, increasing international travel and climate change all render epidemic outbreaks a global and not simply a local phenomenon, imply that it is important for all countries to take necessary measures to counter this threat. In this context, several initiatives have been proposed, ranging from a single measure (e.g. investing in new antibiotics), to broader solutions to be adopted by developing and developed countries alike. In the European Union (EU), healthcare organisation and provision are Member State prerogatives and responsibilities. The EU's actions in this area therefore aim at complementing national policies to help Member States face common challenges, such as epidemics. This support takes place via coordination and exchange of best practices between EU countries and health experts, financial support under Instruments for co-financing, (e.g. the Horizon 2020 research programme and European Fund for Strategic Investments), and the adoption of relevant legislation. The European Parliament has taken the opportunity, through own-initiative resolutions, to highlight the need for further actions.

Economic and Budgetary Outlook for the European Union 2020

31-01-2020

This study, the fourth in an annual series, provides an overview of the economic and budgetary situation in the EU and beyond. It summarises the main economic indicators in the EU and euro area and their two-year trends. It explains the annual EU budget, provides an overview of its headings for 2020, and sets out the wider budgetary framework – the multiannual financial framework (MFF) – and its possible evolution in the new decade. A special 'economic focus' puts the spotlight on the international ...

This study, the fourth in an annual series, provides an overview of the economic and budgetary situation in the EU and beyond. It summarises the main economic indicators in the EU and euro area and their two-year trends. It explains the annual EU budget, provides an overview of its headings for 2020, and sets out the wider budgetary framework – the multiannual financial framework (MFF) – and its possible evolution in the new decade. A special 'economic focus' puts the spotlight on the international role of the euro, and on various recent EU-level initiatives in this field.

Covered bonds – Issue and supervision, exposures

24-01-2020

Covered bonds are debt securities issued by credit institutions and secured by a pool of mortgage loans or credit towards the public sector. They are characterised further by the double protection offered to bondholders, the segregation of assets in their cover pool, over-collateralisation, and their strict supervisory frameworks. Currently, their issuance is concentrated in five Member States. National regulatory regimes vary widely in terms of supervision and composition of the cover pool. Lastly ...

Covered bonds are debt securities issued by credit institutions and secured by a pool of mortgage loans or credit towards the public sector. They are characterised further by the double protection offered to bondholders, the segregation of assets in their cover pool, over-collateralisation, and their strict supervisory frameworks. Currently, their issuance is concentrated in five Member States. National regulatory regimes vary widely in terms of supervision and composition of the cover pool. Lastly, despite benefiting from preferential treatment under the Capital Requirements Regulation (CRR), they share no common definition, which can lead to different securities benefiting from this treatment. To remedy this, the Commission has adopted proposals for, on the one hand, a directive, which would lay down investor protection rules and provide common definitions, and on the other, a regulation, which would amend the CRR with regard to covered bond exposures. Parliament voted in plenary on 18 April 2019 to adopt the texts agreed in trilogue. After linguistic corrections, Parliament approved corrigenda and the two acts were signed on 27 November 2019. Third edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

European business statistics

15-01-2020

In the context of the work of reviewing the fitness of current regulations (REFIT), the Commission has decided to amend Regulation (EC) No 184/2005 and repeal 10 legal acts in the field of business statistics. The aim is to reduce the administrative burden for businesses, especially SMEs, and to put an end to legal fragmentation in the field of European business statistics. The Commission is proposing to establish a common legal framework for the development, production and dissemination of European ...

In the context of the work of reviewing the fitness of current regulations (REFIT), the Commission has decided to amend Regulation (EC) No 184/2005 and repeal 10 legal acts in the field of business statistics. The aim is to reduce the administrative burden for businesses, especially SMEs, and to put an end to legal fragmentation in the field of European business statistics. The Commission is proposing to establish a common legal framework for the development, production and dissemination of European statistics related to business structure, economic activities and performance, as well as on international transactions and research and development activities in the EU economy; and for the European network of national statistical business registers and the EuroGroups Register. The regulation includes provisions covering business registers, the data sources to be used, and the exchange of confidential data for the purpose of intra-Union trade in goods statistics. The final act was signed on 27 November 2019 and published in the Official Journal on 17 December 2019. It will apply from 1 January 2021, with the exception of certain articles, which will apply from 1 January 2022. Second edition. The ‘EU Legislation in Progress’ briefings are updated at key stages throughout the legislative procedure.

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