Europe’s economy is recovering. Across the EU, in even the hardest-hit member states, the rekindling of economic growth and improvements in competitiveness show that the hard work and sacrifices that countries have had to face up to in recent years is starting to pay off. Real GDP growth is set to reach 1.6 per cent in the EU and 1.2 per cent in the euro area in 2014, and to improve further in 2015 to two per cent and 1.7 per cent respectively. A large majority of member states are now growing again and the outlook has improved in even the most vulnerable. By the end of this year, economic output in the EU should return to pre-crisis levels, followed by the euro area in 2015. After sticking to their programmes, Ireland, and now Portugal, are financing themselves freely on the market and Spain too is again standing firmly on its own feet.
The commission has conducted in-depth reviews of macroeconomic imbalances across the EU and has made detailed, tailored policy recommendations to national governments under the EU’s annual cycle of economic policy coordination, the European semester
The road out of the ‘great recession’ has not been easy and plenty of challenges remain on the road we must now take if we are to arrive at a future with sustainable growth and high employment. To get there, national governments and the EU need to take action on structural reforms, macroeconomic stability, and to tackle social concerns. Some of the challenges we still face, such as rebuilding the banking system and completing the banking union, are the unfinished business of the crisis. Others, such as structural reforms to encourage competition and flexibility and to adjust to the realities of an ageing society, are obstacles that we would have had to confront even without the crisis. High levels of unemployment in many countries, particularly among the youth, are a drain on economic vitality and social morale and need to be addressed through a variety of means from wage flexibility, to training, bank lending, and sectoral policies.
The commission has conducted in-depth reviews of macroeconomic imbalances across the EU and has made detailed, tailored policy recommendations to national governments under the EU’s annual cycle of economic policy coordination, the European semester. This year’s asset quality reviews, to be conducted by the European central bank in its new capacity as the euro area’s chief banking supervisor, and the stress tests of the European banking authority, are our chance to clean out the rot in the banking sector and to start afresh. If successful in restoring confidence, these two processes combined should go a long way towards unblocking the flow of credit that we need to nourish our economies.
Although the EU as a whole has already done much to improve the health of its public finances and the fiscal stance this year is expected to be broadly neutral, some countries need to put public debt on a downward trajectory and to make sure that their consolidation strategies are as growth-friendly as possible. Less-indebted member states, meanwhile, need to tackle the distortions in their domestic savings and investment incentives if they are to strengthen domestic demand and realise their full growth potential. Europe also needs to make sure that the very low level of inflation observable at present does not become entrenched, as this would work against countries coping with high debt burdens.
The crisis exposed weaknesses in the design of Europe’s economic and monetary union that the EU and the euro area in particular have worked hard to address. But implementation of the new coordination and governance rules is still a relatively new process that needs to mature if we are to arrive at a coherent policy stance for the euro area as a whole. Choices also remain to be made about the steps we should take to further deepen our economic and monetary union.
A final lesson from the crisis is that it is not enough to simply develop a coordinated and coherent policy strategy; that strategy needs also to be communicated in a coordinated and coherent way. This is a task for both national and EU authorities. The former in particular should avoid the temptation to ‘nationalise successes and Europeanise painful decisions’ if we want to fight against anti-European populism. As always, the Brussels economic forum is the place to exchange ideas on how to overcome all these challenges.