Det Politisk-Økonomiske Udvalg 2008-09
KOM (2009) 0114 Bilag 1
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COMMISSION OF THE EUROPEAN COMMUNITIES
Brussels,
COM(2009) 114 / Provisional version
COMMUNICATION FOR THE SPRING EUROPEAN COUNCIL
Driving European recovery
VOLUME 1
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COMMUNICATION FOR THE SPRING EUROPEAN COUNCIL
Driving European recovery
1.
I
NTRODUCTION
The past six months have seen unprecedented pressure in Europe from a global economic
crisis. The EU's reaction has been a test of resilience and of our speed of reaction. This
situation has also presented challenges of co-ordination and reinforced the need for solidarity
among the 27 Member States. Last autumn, the EU took the action needed to prevent a
meltdown in financial markets. In December, it agreed to put in place a European Economic
Recovery Plan (EERP) to arrest the pace of the downturn and create the conditions for an
upturn. The Commission and Member States have responded positively to the need to take
measures to deal with the crisis and prepare for recovery.
Now that they are being implemented, the need for greater co-ordination in order to maximise
the positive cross border impacts of these measures is beginning to be felt. The purpose of this
Communication is to set out the next steps in dealing with the crisis and leading the EU to
recovery. It contains an ambitious programme of financial sector reform, reviews the
measures being taken to sustain demand, boost investment and retain or create jobs and sets
out a process for preparing the Employment Summit in May. It also places the EU's internal
efforts in the wider context of the upcoming G20 Summit, where the EU should present an
ambitious agenda for reforming the international financial governance system.
As the global economy has continued to slide, falling demand and lost jobs are hitting
businesses, families and communities throughout the EU. Confidence in the financial sector
remains frail. New weaknesses are coming to light and require a co-ordinated response.
Cleaning up the banking system is a prerequisite for a return to normal credit conditions. A
major mobilisation of efforts is necessary, because recovery will take time.
The stabilisation of the financial markets has not yet fed through to loosen the credit crunch
and get lending flowing again to companies and households. It is also why the EU must keep
up the pace of financial sector reform, implementing reforms to regulation, and looking ahead
to a supervisory regime more in tune with today's cross-border realities.
As long as lending remains scarce, efforts to boost demand and consumer confidence will be
held back. Since the Recovery Plan was adopted in December, implementation of the agreed
stimulus package has begun. Although it will take time for the positive effects to work their
way through the economic system, the size of the fiscal effort (around 3.3% of EU GDP or
over €400 billion) will generate new investment, support workers and their families and boost
demand. Action is also coming on stream which targets efforts on the long-term objective of
building a competitive and sustainable EU economy, as set out in the Lisbon strategy for
growth and jobs. This ensures that the EU not only tackles the immediate downturn, but
prepares to make the most of future opportunities.
At the same time, the impact on jobs has spread. Targeted action is needed to limit the
hardship for individuals and prevent the loss of precious skills. Steps can and should be taken
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to keep people in employment through the downturn and to use creative solutions to maintain
the goal of developing a more highly-skilled workforce.
This is a global crisis, and recovery will not be complete until the major players of the world
economy are once again growing and trading together. The steps taken in the EU have served
as inspiration for global partners, and have helped to build a consensus for action which
should be reflected in concrete action at the forthcoming G20 meeting in London.
As the crisis has unfolded, the importance of the EU dimension has become increasingly
clear. The single market has provided the bedrock of EU economic growth for the past 15
years, a driver of growth that has created millions of jobs, making Europe more competitive
and more efficient. It has shaped an unprecedented interdependence which means that traders,
suppliers, manufacturers and consumers are linked as never before. All Member States trade
more with each other than with the rest of the world. Therefore, the best way to boost the
economy is to work with the grain of this interdependence, avoiding any attempt to put
artificial constraints on the impact of recovery measures.
This puts the spotlight on the importance of coordination. While recognising that there are
clear differences in the social and economic situations of Member States, each has a wide
range of levers at their disposal to address their particular circumstances. These levers will be
most effective if they are used within a clear EU framework. For example, national actions to
boost demand will often have a positive cross border effect on goods and services in other
Member States and thus feed through into a virtuous circle of recovery for Europe as a whole.
The EU economy has huge long-term strengths. By maintaining its strong position in world
export markets, it has shown that it has the competitiveness to succeed in the age of
globalisation. It has a highly skilled workforce and social models that are proving their worth
at a time of extreme pressure, protecting the most vulnerable in our society. The EU is
particularly well placed to make the transformation to a low-carbon economy and take up the
technological challenge of tackling climate change. Tackling the challenge of the crisis
together in a spirit of solidarity is the best way for Europe to exploit these strengths to arrest
the downturn and return to growth.
2.
2.1.
R
ESTORING AND MAINTAINING A STABLE AND RELIABLE FINANCIAL SYSTEM
Rebuilding confidence and lending
A stable financial sector is a prerequisite for building sustainable recovery. Last autumn,
coordinated European action to recapitalise and guarantee banks across the EU prevented the
meltdown of the European banking industry and helped restore some liquidity in interbank
markets.
Now it is time to move to monitoring these financial sector support packages to ensure that
they are effectively implemented. Both home and host country authorities of cross-border
financial institutions have a strong mutual interested in preserving macro-financial stability by
guaranteeing the funding and stability of local banking systems and adhering to the principle
of free movement of capital.
The Commission has already presented legislative proposals to improve protection for bank
depositors, make credit ratings more reliable, get the incentives right in securitisation markets,
and reinforce the solidity and supervision of banks and insurance companies. Adjustments to
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the accounting rules were rapidly agreed to put European financial institutions on a level
playing field with their international competitors. These measures are part of building a
stronger, more reliable system for the future.
But confidence in the banking industry remains low. Banks and other financial players are
still in process of deleveraging and have not resumed their usual roles in either wholesale or
retail markets. They are maintaining a very restrictive approach to lending. Restoring the flow
of credit to the real economy is therefore a key priority, to prevent a further reduction in
economic growth.
It is time for action to break the cycle of declining confidence and unwillingness to lend. In
some cases, this means dealing directly with the asset side of banks’ balance sheets, putting an
end to uncertainty about the valuation and location of future losses. To restore confidence in
the banking sector as a whole, banks with impaired assets should disclose them to the
competent authorities.
Building on the guidance already given on the application of state aid rules to measures to
support and recapitalise financial institutions
1
, the Commission has presented a
Communication
2
to help Member States design measures for dealing with impaired assets.
Options include state purchase, state guarantees, swapping or a hybrid arrangement. It is for
Member States to decide whether to use these tools and how they are designed. But a common
and coordinated European framework, based on the principles of transparency, disclosure,
valuation and burden-sharing, will help ensure asset relief measures have the maximum
effect.
The framework will ensure a level playing field between banks, facilitate compliance with the
state aid rules and limit the impact on public finances and prepare for the necessary
restructuring of the sector. The Commission will shortly provide more detailed guidance on
its approach to the assessment of restructuring and viability plans of individual banks under
the state aid rules. It will make a case-by-case assessment, taking into account the total aid
received through recapitalisation, guarantees or asset relief, to ensure long-term viability and
a return to normal functioning of the European banking sector.
To improve credit conditions, the ECB and other central banks have been providing
considerable liquidity. They have already cut interest rates and the ECB has flagged that there
could be scope for further reductions. By creating demand for loans, the impact of the fiscal
stimulus can also be expected to increase bank confidence and willingness to lend. Credit
flows should therefore be monitored very closely in the coming months to ensure that
extensive public intervention in the financial sector really does result in relief for European
households and businesses.
2.2.
Responsible and reliable financial markets for the future
The crisis has exposed unacceptable risks in the current governance of international and
European financial markets which have proved real and systemic in times of serious
turbulence. The unprecedented measures being taken to restore stability in the sector must be
matched by robust reform to remedy known weaknesses, identify and prevent the emergence
of new vulnerabilities in the future. European businesses and citizens need to be able to trust
financial institutions as reliable partners for translating their deposits into the investment that
1
2
OJ C 270, 25.10.2008, p. 8, and OJ C 10, 15.1.2009, p. 2.
C (2009) 1345 of 27.2.2009.
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is so central to the long-term health of the economy. Market surveillance and enforcement of
contractual and commercial practices will play an important role in restoring consumer
confidence in retail banking.
Over the course of 2009, the Commission will propose the ambitious reform of the European
financial system which is set out below and in more detail in Annex I. The reform will set a
clear course for the EU to lead and shape the process of global change in particular through
the work of the G-20. In parallel, the Commission will continue to apply the framework for
urgent rescue relief as well as long-term restoration of viability in application of the existing
state aid guidance.
The reform will ensure that all relevant actors and all types of financial instrument are subject
to appropriate regulation and oversight. It is grounded in the values of responsibility,
integrity, transparency and consistency.
Last year in November, the Commission mandated a High Level Group chaired by Mr
Jacques de Larosière to propose recommendations for this reform, with a particular focus on
supervision. The Commission welcomes the report presented on 25 February 2009 and shares
the Group's analysis of the causes of the financial crisis. The Group's 31 recommendations
offer a comprehensive set of concrete solutions for regulatory, supervisory and global repair
action.
Many of the Group's recommendations for regulatory repair contribute to a growing
consensus about where changes are needed, reflecting issues raised by key actors including
the European Parliament. The Commission has already taken concrete initiatives in areas such
as credit rating agencies; insurance; revision of capital requirements under Basel II;
securitised products; mark-to-market accounting rules and addressing pro-cyclicality of
regulatory measures. Industry has acceded to the Commission's request to move Credit
Default Swaps on European entities and on indices of European entities onto a central
clearing platform established, regulated and supervised in Europe by 31 July 2009. In other
areas, such as the regulation of hedge funds and other non-bank investment actors,
transparency of derivatives markets and improved accounting rules, Commission proposals
will be brought forward as a matter of priority in the coming months.
The Group's recommendation on the need to develop a harmonised core set of standards to be
applied throughout the EU is of particular interest. Key differences in national legislation
stemming from exceptions, derogations, additions made at national level or ambiguities in
current directives should be identified and removed. The Commission will therefore launch an
important new initiative in this sense. The Group's findings on sanctions regime also point to
the need for a new push on this front.
In the supervisory sphere, nationally-based supervision models are lagging behind the market
reality of more and more banks and insurance companies operating across borders. The
Commission has already proposed establishing colleges of supervisors to facilitate
cooperation between supervisors for cross-border bank and insurance firms. Coordination
within the three Committees of European Supervisors has been a significant step forward but
is not without limitations. The Commission has modified the Committees’ mandates which
will improve their efficiency and effectiveness, introduce qualified majority decision-making
and a “comply or explain” approach. A proposal to give the Committees better funding for
their activities is currently before the budgetary authority.
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The de Larosière Group's report highlights the existing gaps in preventing, managing and
resolving crises and the difficulties caused by a lack of cooperation, coordination, consistency
and trust between national supervisors. For businesses, complying with numerous different
regimes brings additional administrative and regulatory burdens. The Commission agrees with
the Group's finding that recent experience has exposed important failures both in the way
supervisors look at particular cases, and in their approach to the financial system as a whole.
Regarding macro-prudential supervision, the Commission particularly welcomes the Group's
idea for a new European body, under the auspices of the ECB and involving the Commission
and the Committees of European Supervisors, to gather and assess information on all risks to
the sector as a whole, across all sectors of finance. Such a body would be well placed to
identify systemic risks at European level and issue risk warnings. Mandatory follow-up and
monitoring tools, and the possibility to refer issues to global early warning mechanisms,
would be essential.
In terms of supervising individual companies, the Group has recommended the establishment
of a European System of Financial Supervision (ESFS). In a first phase the three Committees
of European Supervisors as well as national supervisors would be strengthened, and a more
harmonised set of supervisory powers and sanctioning regimes would be introduced. In a
second phase, the Committees would be transformed into Authorities carrying out certain
tasks at European level, whilst relying on colleges of supervisors and national supervisors for
the day-to-day supervision of individual companies. A review after three years would
consider the need for further consolidation of the ESFS.
The Commission agrees with the Group's finding that the structure of the existing Committees
– whose role has reached the limits of what is legally possible - is not sufficient to ensure
financial stability in the EU and its Member States, and that the inefficiencies in the present
structure need to be resolved as swiftly as possible. The Commission also considers that there
are merits in a system which combines certain centralised responsibilities at European level
with maintaining a clear role for national supervisors who are closest to the day-to-day
operation of companies.
The Commission considers that action is urgently needed and will propose to accelerate the
implementation of the Group's findings. By combining the two phases proposed by the Group,
it should be possible to move more quickly to both improve the quality and coherence of
supervision in Europe, and to transform the three existing Committees into authorities within
a European financial supervision system. The feasibility of whether to combine one or more
of these authorities should be examined with a view to ensuring maximum supervisory
coherence and enhancing consistency and interaction between banking, insurance and markets
supervisory experts.
The authorities could be charged with oversight and ultimate decision-making powers
regarding colleges of supervisors for cross-border groups; ensuring consistency and good
practice through setting common high standards and providing common interpretations of
requirements for supervisory activities; and a key role in early warning mechanisms and crisis
management, working with the body set up to look at the overall picture.
Building on the recommendations of the de Larosière Group, the Commission will now move
forward in developing proposals to establish a new European financial supervision system.
Drawing on views expressed by Member States, the existing Committees, the European
Parliament, the ECB and other stakeholders, the Commission will prepare its proposals on the
basis of an impact assessment, in line with its better regulation principles.
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To deliver responsible and reliable financial markets for the future, the Commission will
propose an ambitious new reform programme, with five key objectives:
(1)
To provide the EU with a
supervisory framework
that detects potential risks early,
deals with them effectively before they have an impact, and meets the challenge of
complex international financial markets. The Commission will present a
European
financial supervision package
before the end of May 2009, for decision at the June
European Council. The legislative changes to give effect to these proposals will follow
in the autumn and should be adopted in time for the renewed supervisory
arrangements to be up and running in the course of 2010. The package will include
two elements:
– Regarding macro-prudential supervision, measures to establish a
European body
to oversee the stability of the
financial system as a whole
– Regarding micro-prudential supervision, proposals on the architecture of a
European financial supervision system
(2)
To fill gaps where European or national
regulation
is insufficient or incomplete,
based on a 'safety first' approach. The Commission will propose:
– A comprehensive legislative instrument establishing regulatory and supervisory
standards for
hedge funds, private equity
and other systemically important
market players(April 2009)
– A White Paper on
tools for early intervention
to prevent a crisis (June 2009)
– On the basis of a report on
derivatives
and other complex structured products
(June 2009), appropriate initiatives to increase transparency and ensure financial
stability
– Legislative proposals to increase the quality and quantity of
prudential capital
for trading book activities and tackle complex securitisation (June 2009) and to
address liquidity risk and excessive leverage (Autumn 2009)
– A rolling programme of actions to establish a far
more consistent set of
supervisory rules
(to be launched in 2009)
(3)
To ensure that European
investors, consumers and SMEs can be confident
about
their savings, access to credit and their rights as concerns financial products, the
Commission will come forward with:
– A Communication on
retail investment products
to strengthen the effectiveness
of marketing safeguards (April 2009)
– Further measures to reinforce
bank depositor, investor and insurance policy
holder protection
(Autumn 2009)
– Measures on
responsible lending
and borrowing (Autumn 2009)
(4)
To
improve risk management
in financial firms and align
pay incentives
with
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sustainable performance. To this end, the Commission will:
– Strengthen its 2004 Recommendation on
remuneration of directors
(April 2009)
– Bring forward a new Recommendation on
remuneration in the financial
services sector
(April 2009) followed by legislative proposals to include
remuneration schemes within the scope of prudential oversight (Autumn 2009)
(5)
To ensure
more effective sanctions
against market wrongdoing. To this end, the
Commission intends to:
– Review the
Market Abuse Directive
(Autumn 2009)
– Make proposals on how
sanctions
could be strengthened in a harmonised manner
and better enforced (Autumn 2009)
The Commission invites the Spring European Council to endorse this reform ahead of the G-
20 London Summit. This will demonstrate the European Union's willingness and commitment
to take ambitious measures to implement the G-20 Washington action plan. The European
Parliament and the Council should be invited to give due priority to the Commission's
forthcoming proposals.
3.
S
UPPORTING THE REAL ECONOMY
The global economy is in the midst of the worst recession in decades. World trade has
contracted at a rapid pace. Industrial production declined rapidly towards the end of 2008.
Both the US and Japan have seen a marked decline in GDP, whilst China had its lowest
growth performance since 2001 reflecting the dramatic decline in world trade.
The EU economy could not escape this worldwide downturn. Both the euro area and the EU
are now in a serious recession. Output in manufacturing and construction has been especially
hard-hit with an estimated loss of €150 billion in full-year terms. The automotive sector alone
fell by 32.3%, which triggered deterioration in many other sectors. EU manufacturing exports
to non-EU countries dropped by 5.8% in November/ December 2008, while intra-EU trade
was 13.7 % lower than the previous year.
But whilst real GDP is expected to fall by nearly 2% in 2009
3
, it should recover gradually to
around �½% in 2010 in part due to the effects of policy measures being taken at European and
national level under the European Economic Recovery Plan (EERP).
3.1.
Implementing the European Economic Recovery plan
In December 2008, on the basis of proposals from the Commission, an ambitious European
Economic Recovery Plan (EERP) was agreed. At its core was a combined effort to give
Europe's economy an immediate fiscal boost, while targeting this investment at strengthening
the European economy for the long-term challenges ahead. It recognised that the fall in
private demand made the role of public expenditure even more important in the short term.
3
According to the Commission's January forecast.
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The full impact of the EERP will only become clear in the coming months, but the early signs
are positive, both in terms of volume of the stimulus and the direction of reforms. Most
Member States have now adopted or announced fiscal stimulus measures. Over the period
2009 and 2010, fiscal policy is providing support to the economy in the region of 3.3% of
GDP, equivalent to more than €400 billion, a potentially huge support to growth and jobs
across the EU.
A large share of this support comes from the operation of automatic stabilisers which are
particularly strong in the EU. It also comes from discretionary fiscal stimulus packages of
Member States in the region of 1.2% of GDP called for in the EERP, although the scale varies
widely according to the Member States' room for fiscal manoeuvre. A further €30 billion or
0.3% of GDP has been made available from EU sources
4
. The Commission has proposed a
targeted investment to the tune of €5 billion to address the challenge of energy security and to
bring high-speed internet to rural communities, as well as through additional advance
payments under cohesion policy amounting to €11 billion, of which €7 billion for new
Member States. Moreover, the European Investment Bank (EIB) has boosted its SME lending
possibilities by €15 billion.
Most of the measures Member States are taking are well targeted to stimulate demand:
support for households, business, and employment, directly increasing demand through public
investment and the modernisation of infrastructure (see Annex II for details). And most of
these measures are consistent with the longer-term objectives identified in the country-
specific recommendations under the Lisbon strategy for growth and jobs – such as building
Europe's knowledge base, boosting energy security and adapting to a low-carbon economy.
An effective and rapid implementation of these measures will be critical, and will need to be
complemented by action to improve business conditions. The EU has every interest in
maintaining a strong and competitive industrial base as it moves towards a knowledge-based
and low carbon economy. Given the complex nature of modern industrial production, the
economies of scale and opportunities for diversification offered by the Single Market, the EU
has developed a policy of horizontal support for industry in recent years. At both EU and
national level this means that R&D, innovation, new and environmental technologies as well
as training can all be funded as support and development measures. These horizontal
measures can be implemented in different sectors of the EU economy, as recently illustrated
in the EU framework for the automotive industry, issued by the Commission on 25 February
5
.
Member States are also giving priority to the needs of SMEs due to their huge contribution to
overall employment in the EU and are invited to speed up implementation of the Small
Business Act. The Commission will shortly table a legislative proposal to tackle the issue of
late payments more effectively. Moreover, the potential of better regulation should be used to
the full, notably via the reduction of administrative burdens..
Action to raise skills, to boost investment in research, to promote the conditions for
innovation, to spread high-speed Internet, to renew existing transport and energy
infrastructure, including through increased use of public private partnerships, to upgrade
energy efficiency and to increase renewable energy all fit squarely into the objectives of the
EERP. Such action will be facilitated by rapid adoption of the proposed modification of
4
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Including a number of new public private partnerships.
COM (2009) 104 of 25.2.2009.
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cohesion policy legislation. Member States are encouraged to make full use of the
possibilities offered by these modifications to speed up key investments.
Understanding and managing the long-term impact of the crisis on public finances - and
managing the consequences for pension and healthcare systems - will be vital. Budget deficits
should return to positions consistent with the need to ensure long-term sustainability of public
finances as soon as economic conditions allow, notably in view of the future cost stemming
from an aging population. Long-term sustainability should be ensured within the framework
of the Stability and Growth Pact.
Some Member States are now in a process of reducing their budget deficit to reduce their
dependence on external flows of credit. The support facility for medium term assistance to the
balance of payments of non euro area Member States has been strengthened following timely
support to Hungary and Latvia.
The EERP is part of the Lisbon Strategy for Growth and Jobs to the current crisis. It provides
the right balance to combine an immediate stimulus with the long-term perspective needed.
As a result, Europe should come out of the crisis better prepared to meet the challenges of a
world economy geared towards low-carbon and innovative activities.
The Commission will closely monitor the impact of the measures taken, together with the
Member States, and report on progress made ahead of the June European Council.
3.2.
The Single Market as a lever for recovery
Europe's successful economic recovery will depend on our ability to make the most of both
internal and global markets. The Single Market has been the motor of economic and social
prosperity and job creation in the EU
6
. It offers economies of scale, efficiency gains, and the
chance to harness the EU's strengths. It can act as one of the key drivers for recovery provided
it is closely coordinated at European level.
Helping to coordinate the response to the crisis, the Commission has ensured that in designing
demand support measures, Member States can take full advantage of the flexibility available
under existing Community rules. The use of the accelerated public procurement procedure
means public investment contracts can be signed within one month. The temporary
framework for state aid measures helps companies to access finance in the face of restrictive
bank lending. Member States can provide additional export credit insurance through public
entities where such insurance is no longer available from the private sector owing to the
financial crisis.
At the same time, the EU needs to continue its own work to improving the business
environment, to support the small and medium sized enterprises likely to lead the way when
recovery comes. The Commission has recently presented proposals to reduce accounting
burdens on microenterprises, with potential savings for business of around € 6 billion
7
, and
will continue to carefully weigh the burden of new initiatives. The timely transposition of the
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The Internal Market has raised EU prosperity by 2.15% of EU GDP year on year and added 2.75
million extra jobs between 1992 and 2006. Intra-EU trade relative to GDP rose by 30% between 1995
and 2005.
COM (2009) 83 of 26.2.2009.
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Services Directive this year will present a further means to promote new economic activity
and employment opportunities.
Upholding the benefits of the Single Market, and promoting the same values outside Europe,
will give the EU a unique launch pad for the return to growth. Protectionism and a retreat
towards national markets can only lead to stagnation, a deeper and longer recession, and lost
prosperity.
Member States' action to address the crisis must take the Single Market dimension into
account. Most, if not all, Member States will intervene to support economic activity on their
territory during this crisis. The intelligent use of national levers in a European context is the
best way to ensure that action will be effective.
National measures can be most effective if Member States act in the knowledge that they are
working with the grain of the single market. Working in partnership with Member States, the
Commission stands ready to provide assistance with the design and implementation of
concrete measures, promoting the exchange of good practices and sharing policy experience.
This coordination can ensure that positive spill-overs are maximised. It should include sharing
information on measures taken as well as joint assessments of the impact of these measures.
Annex III provides further guidance on how Member States can design recovery measures in
order to ensure their compatibility with the most relevant Community legislation.
3.3.
Renewing the European economy beyond the crisis
There is no doubt about the real pain that this twofold crisis – financial and economic – is
causing to European households and businesses. The road to recovery will be gradual and will
require a major mobilisation of efforts by all involved to accelerate implementation of
structural reforms under the Lisbon Strategy. By pooling our efforts and by making the most
of our competitive advantages, especially our Single Market, we can ensure that Europe
comes out of this recession more quickly.
By keeping our sights firmly on our shared principles and our longer term policy goals, the
measures we are taking to get through the present crisis will prepare the ground for a smooth
transition to the European economy of the future. In particular, we should maintain the pace
of our efforts to shift to a low carbon economy: when the upturn starts green technologies and
products should be the lead markets. We need to launch work now on how to improve the
structures we have to deal with the recovery: companies will restructure, some will diversify
and some may leave the market. The process of returning nationalised companies to private
ownership and generally returning the level of state intervention in our economies to more
normal levels will need careful management. Community competition policy can support this
vital process, steering it towards open, efficient and innovative outcomes.
The lessons of the crisis will also need to be taken into account in renewing the European
structural reform agenda. Drawing on the lessons of recent experience, the Commission
intends to launch a debate on the Integrated Guidelines for Growth and Jobs under the Lisbon
Strategy, which guide the Member States and the Community in the preparation of their
respective programmes for structural reform.
The Commission will work closely with Member States and other Lisbon strategy
stakeholders to take account of the outcome of this debate in the design of the post-2010
Lisbon Strategy. This process will start with a general review of the revised Lisbon Strategy
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under the Swedish Presidency in preparation of decisions to be taken in the spring of 2010
under the Spanish Presidency.
The full impact of the EERP will only become clear in the coming months, but the early signs
are positive both in terms of the volume of the stimulus and the direction of reforms:
– Most Member States have now adopted or announced fiscal stimulus packages, meeting
the overall target of 1.5% of the Union's GDP. Taking into account the effects of the
automatic stabilisers, fiscal support of some 3.3% of GDP has been made available for the
recovery. This amounts to more than €400 billion, a huge stimulus to growth and jobs.
– Most of the Member States' measures are targeted to stimulate demand and consistent with
longer-term objectives such as raising skills, enhancing investments in innovation,
promoting high-speed internet, renewing existing transport and energy infrastructure.
– The Commission has ensured that in designing demand support measures Member States
can take full advantage of the flexibility available under Community rules. For instance,
The Commission has recently presented guidance on measures for the automotive industry
to help Member States as they provide support for the restructuring of this sector.
Through the Single Market all Member States will benefit directly and indirectly from orders
for goods and services placed as result of this stimulus package. Member States should pay
particular attention to maximising the positive spill-over effects from the Single Market,
which has been and will remain the motor of economic and social prosperity and job creation
in the EU.
To this end, the following
principles
should shape Member States' actions to support the real
economy:
– Maintaining
openness
within the internal market, continuing to remove barriers and avoid
creating new ones.
– Ensuring
non-discrimination
by treating goods and services from other Member States in
accordance with EU rules and Treaty principles.
– Targeting interventions towards our
longer term policy goals:
facilitating structural
change, enhancing competitiveness in the long term and addressing key challenges such as
building a low carbon economy.
– Taking full account of the crucial importance of SMEs by applying the "think small first"
principle.
– Sharing information and best practice to
maximise the overall positive impact
through
effects of scale.
– Pooling efforts and designing measures so that they generate
synergies
with those taken by
other member states. Stronger co-operation at European level is key in this respect.
– Using the flexibility provided by the renewed Stability and Growth Pact responsibly,
allowing for
return of government deficits to positions consistent with sustainable
public finances
as soon as possible, whilst vigorously tackling the causes behind macro-
economic imbalances.
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– Keeping the Single Market
open to our trade partners
and respect international
commitments, in particular those made in the WTO.
In line with the EERP, Member States must now ensure that the fiscal stimulus packages are
accompanied by an acceleration of structural reforms in the areas highlighted in the Lisbon
strategy country-specific recommendations. It is the best way to ensure that expenditure now
will be most cost-effective, raising future potential growth and least damaging to the long-
term fiscal outlook for the future. It is an essential prerequisite for Europe also to seize the
opportunities offered by this crisis and come out best prepared for meeting the challenges of a
new world economy, geared towards low-carbon, innovation, ICT and skills.
The Commission will monitor progress regularly and report in due time for the next European
Council meetings. Taking into account the results of the EERP, the Commission also intends
to start preparing the post 2010 Lisbon Strategy.
4.
S
UPPORTING PEOPLE THROUGH THE CRISIS
The impact of the slowdown on households and workers is now mounting. Having performed
well in recent years, the labour market situation is now deteriorating rapidly and significantly.
The Commission forecasts that employment growth will be negative for the next two years.
Unemployment is expected to rise steeply. Although the picture varies across Member States,
overall employment is expected to contract by 1.6% this year - some 3.5 million jobs – and
unemployment in the EU could reach 10% in 2010.
Some adjustments on the labour market reflect the impact of successful past structural
reforms. While this should facilitate a quicker improvement when the economy rebounds, it
remains clear that the short-term pain will be high. Young people, those with short-term
contracts, and migrant workers are likely to be the worst hit.
4.1.
Alleviating the human cost of the crisis
Most Member States have introduced employment and social measures in order to support
people and alleviate the human cost of the crisis. Whilst Member States are in the forefront of
tackling these challenges, European policies add value by helping them design and implement
effective responses to the jobs and social cohesion challenge.
Member States have focused their measures on four broad types of priorities:
– Measures aiming at
maintaining existing jobs:
short-time working allowances, reduced
social security contributions, wage subsidies and support to SMEs;
– Measures to
ensure rapid (re-) integration into the labour market:
vocational training
and support for the disadvantaged, changes in sickness or disability benefits, and new
eligibility rules for unemployment benefits;
– Measures to
support the most vulnerable:
increase in minimum income/wage, extended
coverage or duration of unemployment benefits, higher housing or family allowances, tax
rebates or exemptions, and measures against over-indebtedness or repossession;
– Measures to
strengthen social protection and invest in social and health
infrastructure:
investments in housing, hospitals, primary care, long-term care
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infrastructure and schools, and actions to help pension funds meet their long term
liabilities.
The employment and social impact of the crisis is still unfolding, and it is more severe than
expected when most initial measures were put in place. Therefore, efforts need to be stepped
up at all levels in order to tackle unemployment, and to adapt and modernise social assistance,
healthcare and public health schemes. Income support combined with active measures will
stimulate demand, facilitate the transition back to work and avoid social exclusion.
To support Member States in their efforts to address the crisis and implement the recovery
measures, the available financial instruments are being strengthened. Renewing the
European
Globalisation Adjustment Fund
8
will allow it to be quickly activated to support workers hit
by significant job cuts and their communities.
The current
European Social Fund (ESF)
programmes support 9 million workers each year;
€10.8 billion in grants are available through the ESF in 2009 alone. The Fund can respond to
crisis-driven needs, e.g. to improve matching of labour demand and supply, support joint
initiatives by social partners, promote social innovation and employment partnerships, or
strengthen public employment services. The simplification of the rules for the ESF
9
will allow
an immediate increase of advance payments of € 1.8 billion. In all cases where there is a need
to adapt the ESF programming to the needs of the crisis, the Commission will ensure that
programme changes are completed in the shortest possible time.
While further measures to support employment have to be tailored by Member States, in
cooperation with the Social Partners, to their specific economic conditions and labour market
situation, it is important that they remain consistent with long-term structural reform needs.
Measures should facilitate the long-term restructuring process of the most affected sectors,
enhance their competitiveness and human capital. They should also help to address key long-
term challenges such as the impact of demographic ageing on labour supply and to seize the
opportunities of the low-carbon economy.
In order to maximize positive spill-over effects, and to better address collectively the
unprecedented challenges of the crisis, the Commission will promote mutual learning and
exchange of good practices across the Member States.
The following
elements
can help Member States in the design of appropriate and effective
measures:
Keeping people in employment,
notably by providing financial support to temporary
flexible working-time arrangements. Temporary adjustment of working hours ("short-
time") in line with production needs can be an important source of labour input flexibility.
By preventing mass lay-offs, this may mitigate the social impact of the crisis, save
considerable firing and (re)hiring costs for firms, and prevent loss of firm-specific human
capital. Such action needs to be combined with measures supporting employability and
guiding people towards new jobs, empowering workers to take advantage of new
opportunities when the upturn comes. These measures need to be coordinated to avoid
negative spill-overs in other Member States.
8
9
COM (2008) 867 of 16.12.2008.
COM (2008) 813 of 26.11.2008.
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Reinforcing activation and providing adequate income support
for those most affected
by the economic slowdown, making full use of social protection benefits, in line with the
flexicurity approach. In those countries where unemployment insurance is strictly limited
in time, consideration should be given to its temporary expansion and/or a reinforcement of
minimum income provisions. Back to work incentives should be kept intact, and
vulnerable groups supported in line with the active inclusion strategy.
Investing in re-training and skills upgrading
particularly for workers on short time and
in sectors that are declining. Preference should be given to training targeted at future
labour market needs, such as green jobs. Anticipation of future skills needs should
therefore be promoted. Employment Services should be enhanced to cope with increased
unemployment.
Mitigating the direct impact of the financial crisis on individuals
through specific
measures to prevent over-indebtedness and maintain access to financial services. In
countries with larger pre-funded schemes in their pension systems, the recovery of pension
funds will be essential to protect the current and future income of pensioners.
Ensuring the free movement of workers
within the Single Market which will be the
source of new opportunities. It can help address the persistence of mismatches between
skills and labour market needs, even during the downturn. In this context, the Posted
Workers Directive serves to facilitate free movement of workers in the context of cross-
border provision of services, whilst effectively safeguarding against social dumping. The
Commission will work with the Member States and Social Partners on a shared
interpretation of the Directive to ensure that its practical application - in particular
administrative cooperation between Member States - works as intended.
– Considering
supporting measures
such as lowering non-wage costs for low-skilled
workers. Wage developments and fiscal measures should take account of each Member
State's competitive position and productivity growth.
– Providing sufficient support to tackle
youth unemployment
and early school leavers.
Time spent out of education or employment while young can have lasting effects. Member
States should prepare for and encourage an increase in demand for
education and
training,
as existing students stay on and displaced workers seek to re-skill. In this respect,
future labour market growth areas such as 'green jobs' can already be anticipated.
– Integrating measures aimed at revising employment protection legislation within a
flexicurity approach
covering all its components so as to reduce segmentation and
improve the functioning of labour markets.
4.2.
An Employment Summit for Europe
A European approach can add value to Member States' efforts to meet the employment
challenge, whilst avoiding distortive effects. The European Employment Summit in May will
provide the opportunity to take stock of the developing situation, and to agree on further,
concrete measures. It will be prepared together with the Social Partners and will build on the
progress made on the Renewed Social Agenda over the last year.
The Summit should deliver three objectives:
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– It should help accelerate recovery by focusing on structural reform to create more flexible,
secure and inclusive labour markets.
– It should agree a concerted approach to reduce the social impact of the crisis.
– And it should launch a new consensus with Social Partners and stakeholders about how to
modernise social policies to the mutual benefit of both employees and employers.
Particular focus could be given to measures to counter unemployment, with an emphasis on
the integration of younger and more vulnerable workers into the labour market. The Summit
should look at how EU policies can better support Member States' efforts, in particular in
addressing the structural weaknesses of labour markets in line with the recommendations of
the Lisbon Strategy for Growth and Jobs.
The Summit will be prepared together with the Social Partners and in consultation with all
stakeholders. To collect input for the themes and possible outcomes of the Summit, the
Commission will organise a series of workshops in a number of different Member States to
bring together the European Parliament, the Social Partners, NGOs and civil society. This will
complement the ongoing exchanges the Commission has with the Member States and with the
Social Partners in the European social dialogue. This broad and open preparatory process
should serve as a sound basis for building an ambitious consensus around a series of concrete
deliverables in May.
5.
P
ROMOTING
S
UMMIT
GLOBAL RECOVERY
:
THE
E
UROPEAN
CONTRIBUTION TO THE
G-20
This is a global crisis. The scale and speed at which a shock in one systemically important
financial market soon affected the financial system and spilled over to real economies
worldwide have shown just how interdependent the world has become.
The EU played a leading role in building recognition that global solutions are needed.
Following the EU's initiative, the G-20 Washington Summit in November 2008 agreed an
action plan to renew the international financial architecture to bring it up to date with the
realities of globalisation.
The EU must continue to speak with one voice at the G-20 London Summit of 2 April. We
can be a strong and influential partner in this work, given our long-standing and successful
experience of regional market integration and effective institution-building.
As implementation of the European Economic Recovery Plan gains momentum, against the
background of an ambitious reform of European financial markets, the European Union is
particularly well-placed to take the lead in proposing concrete solutions that can deliver
effective results at global level.
These efforts should be consistent with the need for global solutions in the area of climate
change. The transition to a low-carbon economy should create new opportunities for growth
not only in Europe but worldwide. The London Summit should therefore reaffirm its
commitment to an ambitious global outcome to the UN Climate Change negotiations in
Copenhagen in December 2009.
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We should also ensure that the London Summit projects clear messages about the need to
keep global markets open. Whilst there is a global recognition that the historical experience of
protectionism in a downturn is disastrous, domestic pressures to apply restrictive measures
can be strong. An unequivocal message is essential to hold off these threats.
Potential EU candidates and neighbouring countries are also feeling the impact of the crisis.
The Commission remains committed to working with European and international financial
institutions to support their economic stability and development. The Commission has
welcomed the action plan developed by the European Bank for Reconstruction and
Development (EBRD), the EIB and the World Bank, to deploy assistance to strengthen banks
and support lending in some Central and Eastern European economies.
Finally, given the far-reaching effects of the global crisis and resulting slowdown on
developing countries, we must uphold our commitment to help them through the crisis, out of
poverty and into sustainable growth. Supporting them in pursuing the Millennium
Development Goals is essential to global recovery in a sustainable open economy.
The EU must respect its Overseas Development Assistance (ODA) commitments, so that this,
along with other available means, can be used to stimulate growth, investment, trade and job
creation. Through the different Commission, Member States and EIB instruments, the EU
should focus on activities such as agriculture, climate change and infrastructure where a direct
counter-cyclical impact can be achieved. These efforts should be matched by strong
responsibility by developing countries in ensuring good macroeconomic and fiscal
governance.
At the
London Summit,
consistent with its ongoing internal decisions, the EU should
promote agreement on a comprehensive set of concrete deliverables. The Summit should
deliver firm commitments to
improve the global financial and regulatory system,
so that
all relevant actors and instruments are subject to appropriate regulation and oversight, by:
Improving transparency and accountability:
Banking prudential rules as well as
accounting standards should be improved by building in counter-cyclical mechanisms and
properly addressing fair value. Bank capital requirements should better reflect liquidity
risks and realign incentives on securitisation. The governance structures of the
International Accounting Standards Board should be improved.
Enhancing sound regulation:
Regulation and supervision, and in particular the Basel
Committee's prudential standards, should be extended to all relevant systemic actors –
hedge funds, private equity, and other non-regulated credit institutions. Credit rating
agencies should be subject to tough requirements to ensure the quality and transparency of
ratings and that they are free from conflict of interest. Remuneration policies should be
realigned to avoid short-term excessive risk-taking and to be subject to supervision.
Promoting integrity in financial markets:
A list of uncooperative jurisdictions should be
drawn up together with a toolbox of joint measures for use against them in the areas of
supervision, anti-money laundering, terrorism financing and taxation. Banks should be
dissuaded from operating in off-shore centres
10
through increased prudential requirements
and tougher transparency rules. The rules on holding and transferring intermediated
10
The Commission will shortly make proposals on information exchange and transparency on taxation
matters within the EU and with third countries.
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securities should be harmonised at global level.
Strengthening international supervisory cooperation:
Global colleges of supervisors
should be set up and given the powers they need to be effective. Supervisors should
exchange good practice and promote global convergence of practices.
The Financial Stability Forum
(FSF) should be enlarged ahead of the 2 April Summit, to
include all major emerging countries and the European Commission.
Reforming the governance of the international financial institutions:
the London
Summit should agree to a timetable for further reforms of the governance of the
International Monetary Fund (IMF) and the World Bank. The system for top appointments
to these two institutions should be reviewed.
Strengthening the IMF:
Member States should present a joint contribution to the
temporary doubling of IMF resources. The IMF should strengthen its surveillance, by
deepening the coverage of financial sector issues, reinforcing multilateral surveillance, and
ensuring multilateral consultations including the orderly reversal of global imbalances.
Cooperation with the FSF should be enhanced and effective joint early warning
mechanisms established. FSF members and other systemically relevant countries should be
assessed regularly by the IMF and vulnerabilities identified should feed into the early
warning mechanism. Reforms should include internal procedures and should ensure that
the key conclusions of IMF surveillance are fed into the International Monetary and
Financial Council.
Developing the World Bank and Regional Development Banks:
The banks should
implement the instruments at their disposal in a flexible manner to frontload assistance to
mitigate the effects of the crisis, particularly for vulnerable populations. Adequate
financing should be assured for their activities.
The Summit should
support balanced growth in global markets,
by:
Advancing global recovery through continued international coordination of fiscal
measures
and their real impact. The EU is doing its part in the global effort to restore
growth. International cooperation should ensure that the current fiscal measures are
consistent with long-term fiscal sustainability. Moreover they should provide sufficient
levels of investment in long-term policies, such as innovation, education, energy efficiency
and the low-carbon economy. Once the recovery takes hold, an orderly and coordinated
reversal of macro-economic stimuli is warranted.
Promoting open trade
as a complement to the fiscal stimulus. G-20 countries should
strive for further global market opening. An early conclusion of the Doha round on the
basis of the existing negotiating texts on agriculture and industrial goods is key. The
London Summit should reaffirm a strong common stance against protectionism, in line
with the standstill commitment agreed at Washington and the effective monitoring
mechanism established under the WTO. G-20 partners should express their collective
determination implement this commitment at the highest political level.
– Launching a
multilateral initiative on trade finance
that would reinforce the efforts of
the World Bank Group and other relevant multilateral development agencies in expanding
their trade finance activities.
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Promoting global development
as part of the solution to the global crisis and a basis for
peace and stability worldwide. The London Summit should reaffirm the commitment to
supporting developing countries' efforts to generate growth and the fight against poverty,
in particular by delivering on the Millennium Development Goals. To facilitate the active
participation of developing countries in international trade, the G-20 should meet their aid-
for-trade pledges and give duty-free and quota-free access to their markets for least
developed countries.
6.
C
ONCLUSION
This Communication sets out how the European Union can build on the steps already taken to
address the financial and economic crisis. The EU is now entering a new phase of
implementation of its Recovery Plan, with a need for effective co-ordination of the measures
being taken to ensure that they work to best effect to help businesses, households and
communities across Europe. This Communication echoes the discussion of the Heads of State
and Government on 1 March 2009 and underlines that the road to recovery will be eased if
measures in one Member State are shaped to spark an upturn in others. Effective coordination
will make the single market a springboard for recovery.
The Commission invites the Spring European Council to:
Agree on the need for a new package of financial sector reform measures including a
new supervisory framework for the EU's financial sector, based on the work of the de
Larosière group, and to decide on the main elements of this new framework at the
June European Council, on the basis of further proposals from the Commission; and to
invite the Council and European Parliament to give priority to the adoption of the
proposals on financial services regulation to be proposed by the Commission in the
coming months;
Invite Member States to take the necessary action to ensure long-term financial
stability as soon as economic conditions allow, in line with the revised Stability and
Growth Pact;
Invite Member States to expedite the implementation of their national recovery plans
and structural reforms;
Invite Member States to apply the common principles set out in section 3.2 when
designing and implementing measures to strengthen the real economy;
Invite Member States to effectively support people through the crisis, drawing on the
elements for action outlined in this Communication;
Endorse the process for the preparation of the European Employment Summit in May;
Approve the joint European position for the G-20 Summit in London.
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