Euro Group 29 November 2011 on EFSF

Ahead of the Economic and Financial Affairs Council today, the finance ministers of the eurozone countries gathered in the informal Euro Group yesterday evening, 29 November 2011. You can watch the late press conference with the Euro Group president Jean-Claude Juncker, Commission vice-president Olli Rehn (Ecfin) and EFSF chief executive officer Klaus Regling (a little less than half an hour).

The EU Council Press Office offers a page with six documents concerning the European Financial Stability Facility (EFSF).

Business Insider and Bloomberg offer a condensated views of the technical work to leverage the EFSF, but the main finding is that fresh real money is not yet in sight to reach the one trillion euro goal.

The FT Alphaville blog says the problem is that it’s become more and more clear that whatever the final amount of firepower achieved through these options probably won’t be adequate. Talks are under way to involve the International Monetary Fund (IMF).

Meanwhile the clock keeps ticking for the eurozone.



Ralf Grahn

Olli Rehn on Annual Growth Survey, stability culture and eurobonds

In January 2011 the European Commission started the more integrated economic planning round known as the European Semester (Ecofin conclusions), by publishing the first Annual Growth Survey (AGS), the cornerstone document for better economic policy and governance in the European Union.

The Commission was able to start the second European Semester much earlier. The next AGS has now been published, although the Commission's Green Paper on eurobonds and other economic governance proposals stole the limelight.

Olli Rehn, who is now presented as vice-president of the European Commission and member of the Commission responsible for economic and monetary affairs and the euro, sketched the background in Berlin, Tuesday (SPEECH/11/782, English only):

Fiscal consolidation is a necessary but not sufficient condition to bring Europe back on track. Tomorrow, the Commission will present its view which reforms should be taken as a matter of urgency in our Annual Growth Survey, which kicks off the second annual cycle of economic policy coordination in the Union. First, of course, we address fiscal consolidation and the financial sector. We also outline which structural reforms are most necessary to jobs and growth, in particular as regards human capital, and how to make public administration more effective.

After discussing stability culture as the core principle of economic governance, in both monetary and fiscal policy, Rehn announced two proposals for the following day, aiming at further stability to fiscal policy of the euro area:

The first proposal underpins national stability culture by requiring numerical fiscal rules on the budget balance, in line with medium-term budgetary objectives of the Stability and Growth Pact. Such rules shall cover the whole government and be of binding, preferably constitutional, nature. You are right if this reminds you of the Schuldenbremse.

Moreover, we propose independent fiscal councils at national level to underpin robust budgetary planning. We also aim to complete the coordination of national budgetary cycles at the European level. In the so-called European Semester in the first half of each year, we evaluate the multi-annual budgetary plans at EU level. But for euro area countries, we need to make sure that the national budgets are in line with the obligations of the SGP before they are enacted. Thus the Commission should take a look at draft budgets by 15 October at the latest, and if needed issue its opinion.

Our second proposal is reserved for such euro-area countries that receive financial assistance. For them, the enhanced surveillance and the monitoring of programme conditionality will be required through law.

These proposals can be implemented within the current EU Treaties. But strengthening the Economic and Monetary Union further would require changes to the Treaty. The President of the European Council, together with the Presidents of the Commission and the Eurogroup, are now identifying what kind of changes the deepening of political and economic integration within the euro area may require in the longer term.

Rehn turned to the hotly debated eurobonds, in a manner tuned in to his German audience:

Tomorrow, the Commission will present a Green Paper on the rationale, preconditions and possible options of financing public debt through eurobonds – better called stability bonds. While the prospect of introducing stability bonds could help alleviate the sovereign debt crisis, I am also aware of the sometimes strong opposition against them.

For me, it is clear that any type of Eurobonds would have to go in parallel, hand in hand, by a substantially reinforced fiscal surveillance and policy coordination, as an essential counterpart. Stability Bonds would require that any step in the further sharing of risk would have to be balanced by provisions that ensure sustainable public finances and avoid free-riding on the consolidation efforts of others. This would have implications for fiscal sovereignty, which calls for a substantive debate in member states.

In other words, a profound reform of economic governance towards deeper policy integration is a necessary precondition for any serious move towards introducing stability bonds. Thus, the Commission's proposals tomorrow really constitute an interlinked package, which builds on the recent reform of economic governance and stability mechanisms, and at the same time outlines a roadmap towards the next stage of an ever closer and sturdier economic union, in both dimensions.

This comments offer a background to the publications the following day, and for future blog posts.



Ralf Grahn

EU Council communications: Heard of the eurozone?

Is it irony, or what? We are in the middle of a crisis of some proportions in the eurozone (population 332 million). There are widespread fears that the euro house of cards might crash in a near future if the assembly line of ”comprehensive solutions” continues to provide too little, too late.

We also know that the finance ministers in the Euro Group met yesterday evening. However, when I arrive at the web page of the Council of the European Union very early in the morning, the latest news on offer are statements from the high representative Catherine Ashton about Northern Nigeria, Liberia, Syria, Japan, Israel and Japan – all worthy matters, of course.

If we click for more news, we have to go back to 1 November 2011 to find two joint press releases addressing economic issues. A week ago EUCO president Herman Van Rompuy and Commission president José Manuel Barroso jointly commented on the (then) latest developments in the eurozone, and they informed us about their upcoming trip to the EU-US summit in Washington DC at the end of the month.

I know that the Euro Group is an informal gathering, not a proper Council configuration, but some sense of priorities, responsiveness and flexibility would be appreciated.


Euro Group press conference

There does not seem to be even a scrap of paper for the public from the Euro Group meeting. You need to know what to look for, because the chairman Jean-Claude Juncker held a press conference (recorded, including questions and answers 35:33), together with the Commission vice-president Olli Rehn and the EFSF chief executive officer Klaus Regling, although most of their introductory comments were obviously read from papers. However, Regling repeatedly referred to an EFSF paper made available to journalists.



Ralf Grahn

Olli Rehn asserts budget consolidation and structural reform

The EU commissioner for economic and monetary affairs, Olli Rehn, Friday tried using reason with regard to the eurozone bond market turmoil:

Ongoing developments in the eurozone; 5 August 2011 SPEECH/11/540

According to Rehn, the latest market run on members of the euro area is not reasonable:

The spread of bond-market tensions across the euro area is, however, not justified by economic and budgetary fundamentals. Economic recovery is proceeding in most parts of the euro area, while important steps in budgetary consolidation and structural reform are underway across Europe and in particular in those Member States most exposed to market tensions.

My blog entry Rehn asserts eurozone recovery concluded that the commissioner had documented his case regarding growth, in the European Union as a whole and Cyprus, Italy and Spain specifically. (Naturally, if the markets turn ugly enough, anything can happen.)

I noticed that fellow blogger Protesilaos Stavrou fired a new broadside at the EU leadership - including José Manuel Barroso, Herman Van Rompuy and Olli Rehn – for ”challenging reason and real world facts”.

Should we look a bit more specifically at Rehn's assertion about budgetary consolidation and structural reform?


European Semester

The European Commission started the first beefed-up and streamlined planning cycle called the European Semester by a 12 January 2011 communication from Rehn's DG Ecfin. The AGS is available in 22 official EU languages; here the English version:

Annual Growth Survey: advancing the EU's comprehensive response to the crisis; Brussels, 12.1.2010 COM(2011) 11 final (10 pages)

DG Ecfin offers all interested readers an informative web page Stability and Convergence Programmes (or updates) and National Reform Programmes 2011, where you can find links to the national programmes for sustainable public finances (Stability and Growth Pact SGP) and for growth-enhancing reforms in line with the Europe 2020 strategy.

Although you have to look separately for intermediary stages, such as European Council conclusions and contributions by various Council configurations, there are links to the Commission staff working papers and proposed recommendations for the euro area and for each member state (including Cyprus, Italy and Greece).

The Ecofin Council concluded the first European Semester by issuing recommendations regarding both budget consolidation and structural reforms, exactly six months after the publication of the AGS.

Having been published in the Official Journal of the European Union, these recommendations and opinions are available in the EU language of your choice:

COUNCIL RECOMMENDATION of 12 July 2011 on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro; OJEU 23.7.2011 C 217/15

COUNCIL RECOMMENDATION of 12 July 2011 on the national reform programme 2011 for Cyprus and delivering a Council opinion on the updated stability programme of Cyprus, 2011-2014; OJEU 16.7.2011 C 210/12

COUNCIL RECOMMENDATION of 12 July 2011 on the National Reform Programme 2011 of Italy and delivering a Council opinion on the updated Stability Programme of Italy, 2011-2014; OJEU 21.7.2011 C 215/4

COUNCIL RECOMMENDATION of 12 July 2011 on the National Reform Programme 2011 of Spain and delivering a Council opinion on the updated Stability Programme of Spain, 2011-2014; OJEU 19.7.2011 C 212/1

***

Having read the AGS and the recommendations and opinions, I invite readers to demonstrate where Rehn went over board in his assertion about budgetary consolidation and structural reform. (Again, a stampede can obliterate the worthiest intentions.)



Ralf Grahn

EU Commission proposes stronger economic governance

The discussion about economic governance in the European Union and the eurozone has been enriched by new proposals.



On 12 May 2010 the European Commission published a communication Reinforcing economic policy coordination; COM(2010) 250 final (12 pages).



A short while ago, the European Central Bank published its proposals on reinforcing economic governance in the Euro Area (14 pages), addressed to the task force chaired by Herman Van Rompuy.



Commission proposal main points



Yesterday, 30 June 2010, Olli Rehn, the commissioner for economic and monetary policy, explained the European Commission’s new proposals on tools for enhanced EU economic governance (SPEECH/10/350).



The key tool to improved surveillance is the European Semester: prior coordination of economic policies. Rehn hopes that the Ecofin Council on 13 July 2010 endorses the launch of the European Semester from 2011 and a revision of the Code of Conduct for the Stability and Growth Pact (SGP).



In a press release, the Commission presented the key proposals for reinforced macro-economic, budgetary and structural surveillance (IP/10/859).



In a clear manner, an explanatory memorandum offered further detail about the proposed toolbox for stronger economic governance in Europe (MEMO/10/288).



Commission communication



During the course of writing this blog post, the Commission’s Directorate-General for Economic and Financial Affairs managed to replace its machine translated web page on enhancing economic policy coordination for growth and jobs with a page in real English.

The same thing happened with the Commission communication. The unreadable machine translation was replaced by a document revised by human beings, even if the text may still be somewhat provisional:



Enhancing economic policy coordination for stability, growth and jobs – Tools for stronger EU economic governance; Brussels, [??] COM(2010) 367/2 (15 pages)

The communication COM(2010) 367 has not yet been posted on the legal portal Eur-Lex, under preparatory documents.




Ralf Grahn

Olli Rehn on improving EU and eurozone economic policy coordination

Olli Rehn, the commissioner for economic and monetary policy, outlined the reform steps the European Union needs, in a speech in Brussels 22 June 2010 (SPEECH/10/329):

Beyond consolidation, we need to act in two further areas: economic governance and structural reform, especially including reform of the financial system.

On 12 May, the Commission made substantial proposals to improve economic policy coordination in the EU. The fiscal framework of the EU, defined by the Stability and Growth Pact, has sound rules. But we can improve it with three main building blocks for reform:

Firstly, we need to synchronise EU surveillance with the national budgetary processes with a "European Semester". Member States should submit their Stability and Convergence Programmes and National Reform Programmes timely, so that they can benefit from early coordination at European level as they prepare their national budgets. We must also put more force behind the Pact – both when there is an Excessive Deficit but also earlier. The Pact must have sufficient teeth to ensure that all Member States exercise fiscal discipline that is not only good individually for the MS but a necessary condition for a smooth functioning of the common currency area.

Secondly, we must look beyond the budget and address macro-economic imbalances between Member States. Both strong exports, based on competitiveness, and domestic demand are important for our prosperity. Strong divergences between Member States can undermine cohesion, especially within the euro area. This must be tackled before it becomes a costly problem for all.

Thirdly, in the medium-to-long term we need to build a crisis resolution mechanism that is permanent. It is better to be safe than sorry.

Moreover, fiscal consolidation should be embedded in a strategy to lift productivity growth and employment rate. In our rapidly ageing societies, this is only possible through significant structural reforms in all areas of economic activity. Last week, the European Council adopted the "Europe 2020" growth strategy to this end.

Proposal on economic policy coordination

The 12 May 2010 proposal Rehn referred to contains analysis and suggested reforms regarding eurozone countries as a group and EU member states as a whole. It is the starting point for the various discussions taking place with a view to finding solutions to common challenges:


Commission Communication: Reinforcing economic policy coordination; Brussels, 12.5.2010 COM(2010) 250 final




Ralf Grahn

Tracking eurozone crisis measures: Hopeful informality

According to the agenda of the Spanish presidency of the Council of the European Union, the informal Euro Group and an informal meeting of finance ministers of all EU countries (ECOFIN) together with the governors of the central banks took place in Madrid 16 to 17 April 2010.



After the informal ECOFIN Council the Spanish minister of economy Elena Salgado remarked that the ministers had reached consensus on almost everything, citing the stability and convergence programmes as an example. This would make formal conclusions possible shortly.

Fiscal consolidation had started and economic growth is gaining pace in almost all countries. Commissioner Olli Rehn was working on proposals for better economic policy coordination and supervision. National budgetary frameworks had been discussed, said Salgado (16 April 2010).



At the press conference on 17 April 2010, commissioner Olli Rehn welcomed the positive reception of ideas to strengthen economic peer review. Concrete proposals would be forthcoming on 12 May 2010.


The outward appearances, at least, were hopeful.




Ralf Grahn

Tracking eurozone crisis measures: Financial supervision and better governance in motion

Even if the Greek aid package and eurozone stabilisation are the main focus of our tracking exercise, financial regulation and supervision are related areas worth mentioning.

On 12 April 2010 the European Central Bank (ECB) and the European Commission held a joint conference on financial integration and stability, the legacy of the crisis (IP/10/417).



The ECB president Jean-Claude Trichet reminded that the financial supervisory framework in the EU will be based on two pillars. The micro-prudential pillar, the European System of Financial Supervisors (ESFS), will be composed of the national supervisors and three European Supervisory Authorities (ESAs). The European Systemic Risk Board (ESRB) will form the macro-prudential pillar.

According to Trichet, the ECB stands ready to support the ESRB:

in particular taking into account the important presence of the members of the General Council of the ECB in the ESRB and the fact that the ECB will provide the secretariat and analytical, statistical, logistical and administrative support to the ESRB, as required under the legislative proposals. Preparatory work at the ECB has been organised through the setting up of an ad hoc team and is under way so that the ESRB can take up its work after its formal establishment. The ECB is in the process of enhancing its capabilities for monitoring and assessing financial stability risks. Only a number of weeks ago, we reformed our Directorate Financial Stability and Supervision into a Directorate General Financial Stability with more resources.

Internal market commissioner Michel Barnier’s speaking points (in French) stressed the need for proper regulation and supervision of integrated European financial markets.




Further reading: the Commission’s web page on financial services supervision.




On 15 April 2010, Olli Rehn spoke about reinforcing economic governance in Europe (SPEECH/10/160). The commissioner for economic and monetary policy said that the aim of the Europe 2020 strategy is to mobilise growth drivers in order to modernise our social market economies. The second pillar is the consolidation of public finances.

Rehn outlined enhancing economic policy coordination through three main building blocks: reinforcing the Stability and Growth Pact, deepening and broadening economic surveillance and setting up a permanent crisis resolution mechanism.




Ralf Grahn

Olli Rehn new EU High Representative?

If the leaders of the EU member states encounter difficulties in electing the President of the European Council, Finland can offer two pro-Europeans with solid merits: Paavo Lipponen is a former Prime Minister, with an impressive record of good governance. Nobel Peace Prize laureate Martti Ahtisaari, former President of Finland, is known for his peace-brokering missions. Both belong to the Social Democratic camp.

Still, the number one preference of the current centre-right coalition government in Finland would be for the present EU Enlargement Commissioner Olli Rehn to become the High Representative for Foreign Affairs and Security Policy. Their second option would be for Rehn to grab the Economic and Monetary Affairs portfolio.

Even if Finland is just one among 27 member states, the merits of these candidates have been noticed by international media. It is too early to tell, what European Council horse-trading in the wee hours may bring about.

***

On the domestic scene, the discussion has not been exempt from party political viewpoints.



The International edition of the largest Finnish Daily, Helsingin Sanomat, has published an article written by the paper’s Brussels correspondent Annamari Sipilä, ”Olli Rehn focuses on economic affairs in preparation for EU Commission portfolio shuffle” (21 October 2009 in English, 17 October in the Finnish print version).



Ralf Grahn

Finland proposes Olli Rehn for EU Commission

Nice or Lisbon rules, the European Union needs a new Commission soon (in principle from 1 November 2009). Every member states needs to put forward a candidate, although one or more may be left outside, if the Treaty of Nice applies.



The international edition of the Finnish daily Helsingin Sanomat reports that the government of Finland has now officially proposed Olli Rehn to become member of the next EU Commission.

Currently Dr Rehn is Commissioner responsible for enlargement.

The announcement comes as no surprise, as it only officially confirms what members of the Finnish government have said for a long time.

Rehn is known as a competent Commissioner, but it remains to be seen if he has chances to become the new High Representative or to grab a high profile portfolio in the Barroso II Commission.


Ralf Grahn