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International Internet Magazine. Baltic States news & analytics Monday, 15.10.2018, 18:21

Financial situation in the EU’s eurozone: urgent issues for 19 states

Eugene Eteris, RSU/BC, Riga, 08.11.2017.Print version
A number of topics were discussed during a regular Eurogroup meeting in early November 2017, including preparation for the Euro Summit at the end of 2017. Among the main issues among 19-members’ zone were banking union in general and its legal aspects, investment in human capital, fiscal policies and reducing debt levels.

Two newly appointed finance ministers were present at the Eurogroup meeting: the Minister from the Netherlands, Wopke Hoekstra, who presented the economic priorities of the new government in the Netherlands, and the acting German Finance Minister Peter Altmaier.

 

Besides, some other officials were present: Danièle Nouy of the ECB Supervisory Board and Elke Koenig of the Single Resolution Board; they regularly inform Eurogroup on developments in the financial sector, on the work they are doing and any challenges they are facing. 


Main financial problems in the eurozone

Firstly, President of the group, Mr. J. Dijsselbloem mentioned very good news: that the banking sector has been in a much better shape; however, there are still elements missing from the EU’s bank union, e.g. legacy issues which are being dealt with the work of SSM and the SRB. They have informed about some legislative work and the challenges they were facing. One of which was dealing with NPLs: Danièle Nouy informed on the recent SSM guidance on NPLs and the provisions for building up NPLs future.

 

Secondly, the group had a thematic discussion dedicated to investment in human capital: a significant share of the member states budgets goes to education and finance ministries have a particular interest in improving the efficiency of public spending on education. The group shared some experiences and best practices on possible ways to improve efficiency in the field of education policies. Some ministers provided insights on their national experiences, in education reforms or tax measures to improve professional education for the benefits of economy.

 

Finally, the group discussed institutional issues: it has been scheduled to elect a new President of the Eurogroup on December 4th; ministers wishing to put forward their candidacy will be invited to do so later in November. A letter will be sent to the ministers outlining the exact procedures, and the dates, so everyone knows in advance how it will take place.

 

The Eurogroup also welcomed a number of ministers from non-euro countries; two topics were discussed: one on the completion of the banking union and the other one on fiscal policy. EU President D. Tusk invited also 27 heads of governments and states to the Eurozone December’s Summit. 


Completion of the Banking Union and other issues

During the Dutch presidency in 2016, the group had agreed on a roadmap which outlined the topics to deal with concerning the completion of the Banking Union. Some connections were introduced between risk-sharing and risk-reduction: both should be work on, in a particular order. There was general agreement that it is useful to take stock of the exact work when dealing with NPLs or other issues on risk reduction and building up on the agreed roadmap.  

 

Of course, political situation has to be taken into consideration when dealing with the fiscal issues and the second part of Eurogroup meeting was the fiscal framework, the fiscal instruments and fiscal capacity. It is not enough to have just rules and institutions that play important role in fiscal policy; besides, there are markets that give off incentives that create outside pressure for politicians to do the right thing. But there is a word of caution to be used, underlined the group’s president, J. Dijsselbloem: “markets are not always rationale, they are not always well-informed, risks are not always priced in the right way; so we must not take guidance from the market but use them and enable them to be more effective in providing some outside pressure to us”.

Reference: http://www.consilium.europa.eu

 

Everyone fully acknowledged the fact that the Commission had been the guardian of the Union’s fiscal issues, with the needs to keep playing that role also in the future. Concerning the rules, the participants agreed that they were complex, not predictable and sometimes not based on observable criteria. That makes it difficult for national ministers to design their budgets, to explain what happens to their electorates, and that is an issue that keeps coming back.

 

On the other hand, the ministers know why the rules are complex: because the rules take into account all different circumstances that may arise with a number of flexibilities, which has also made the rules more complex. There is a trade-off between having simple rules and having rules that fit everyone; a realistic approach is needed: when people want simpler rules, it doesn’t mean they want accept that they could also become much harsher in difficult circumstances; so certain trade-off must be realised.

 

There was a general agreement at the group, that reducing debt levels would become more and more important: fiscal deficit in the eurozone is now less than 1, 5 per cent and will continue to go down, so debt will become a bigger issue. To the extent that eurozone states are more successful in reducing debt, national governments will also be able to absorb shocks better; e.g. it is very useful in the cases of an asymmetric shock. That brings the issue to new instruments, such as the fiscal capacity: debates are still going on about the capacity’s functions in the member states’ abilities and usage, about funding (whether of financial or “transferring” character, etc. Quite a large number of ministers feel that to fiscal capacity as a stabilisation tool would be useful with some convergence in the future.

 

In the conclusion, the group’s president, J. Dijsselbloem said, that the perspective items in the group’s discussion would be the three blocks: future of the ESM, completing the banking union and fiscal policy, including possible instruments. These issues will be brought together in December for the next Eurozone summit.  

 

Reference: Remarks by J. Dijsselbloem following the Eurogroup meeting, 6th November 2017, in: http://www.consilium.europa.eu/en/press/press-releases/2017/11/06/remarks-by-jdijsselbloem-following-the-eurogroup-meeting-of-6-november-2017/






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