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Financing convergence and competitiveness: new efforts in the eurozone states

Eugene Eteris, BC International Editor, Copenhagen, 01.10.2019.Print version
Commission’s spring-2019 economic forecasts showed that the European economy is expected to grow (both in 2019 and 2020) and will remain robust. Growth would be positive in all EU states (often with small margins), which would support employment and increase households budgets.

There are presently some pressing uncertainties dealing with the rising of international protectionism and the need for additional support to economy, i.e. it will be necessary to pursue reforms in the member states aimed at increasing productivity and boost perspective growth sectors in line with the full EU’s economic and monetary union. The latter is important in the sense that it has been an absolutely major factor in investors’ confidence. Hence, it is particularly important to reach a credible and ambitious agreement on the EMU package of reforms among euro area states. Main aspect in the agreement is the present suggestion for discussion called Budgetary Instrument for Convergence and Competitiveness issues, known as BICC.


Regulating member states’ expenditures

There are some BICC’s aspects for the member states governments’ expenditures, as well as supporting and ensuring the principle of co-financing. However, to be effective, the governance of the BICC’s instrument should be fully embedded in the European Semester.


It was decided by the EU leaders at the end of 2018, that the BICC’s procedures should be fully embedded in the EU budget; there was a broad agreement that at least part of the financing should be drawn from the Commission’s proposed Reform Support Program; debates still proceed about the desirability of an intergovernmental agreement through which additional resources could be challenged into the BICC instrument.


The cyclical situation in economy has shown that the BICC’s cyclical properties should be taken into the national financial instruments, so that the instrument shall not exacerbates pro-cyclical approaches. It is likely that the member states would need much-needed positive signals on stabilization efforts.


In this perspective, the idea of adjusting the co-financing rate in the event of a cyclical downturn in one or more EU states is one which is to be explored in the next Semester.


For example, the Eurogroup underlined the importance of the Commission’s decision (together with the member states) aimed at reaching a unanimous approach to the EU’s economic and monetary policy.


Source: Commission’s press release in May 2019, in:

http://europa.eu/rapid/press-release_SPEECH-19-2592_en.htm?locale=en 

 

The ECB acknowledged an urgent need for supporting EU’s growth, in particular in the euro-zone states. In the famous 2012 “whatever it takes” speech, the former ECB boss (he is leaving his post in the fall of 2019 and hand over the post to Christine Lagarde) unveiled in mid-September 2019 the last big decision of his term: a package of long-term measures intended to boost the eurozone’s economy.

 

Note: Mario Draghi's famous speech on July 26, 2012 at UKTI's Global Investment Conference on the 'irreversibility' of the euro and the ECB's preparedness to do 'whatever it takes' to preserve the euro.


Reference to: https://www.youtube.com/watch?v=tB2CM2ngpQg&utm_source=POLITICO.EU&utm_campaign=0e9a34f51d-EMAIL_CAMPAIGN_2019_09_13_05_12&utm_medium=email&utm_term=0_10959edeb5-0e9a34f51d-189017225

 

The ECB has been expecting in the start-2019 that the interest rates would not rise until mid-2020; however, the date has been altered. The ECB’s governing council now expects interest rates “to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below 2 percent”.


The change indicates that reaching the eurozone's inflation target will take an indefinite amount of time and the new measures will tie decision-makers initiatives for the foreseeable future.

 

More about the ECB’s measures in:  https://www.politico.eu/article/ecb-cuts-rates-for-the-first-time-since-2016-in-stimulus-push/?utm_source=POLITICO.EU&utm_campaign=0e9a34f51d-EMAIL_CAMPAIGN_2019_09_13_05_12&utm_medium=email&utm_term=0_10959edeb5-0e9a34f51d-189017225

 


“Depreciating euro against strong dollar”

The ECB's governing council has already cut the deposit rate by 0.1 percentage points to minus 0.5 percent and will restart a €20-billion monthly asset purchase program from November 2019. It was successful in the very measurable, very short term: major indices went up, though Italy’s financing costs went down.


The ECB urged euro-zone states to take actions on fiscal policy to complement the ECB’s measures, including governments’ use of “fiscal space” in an effective and timely manner (that note perhaps refer     to Germany and Italy).


In a message to finance ministers, the ECB underlined that “giving money to people, in whatever form, is a fiscal policy task, not a monetary policy task”.


Reference to:  https://www.politico.eu/article/mario-draghis-parting-gift-to-the-eurozone/?utm_source=POLITICO.EU&utm_campaign=0e9a34f51d-EMAIL_CAMPAIGN_2019_09_13_05_12&utm_medium=email&utm_term=0_10959edeb5-0e9a34f51d-189017225


It is interesting that straight after ECB’s announcement, the US President Donald Trump noticed that the ECB “was trying, and succeeding, in depreciating the euro against a very strong dollar, hurting the US exports … while the US Central Bank (the Fed) is waiting...” 

 

Siemens company mentioned that the EU’s industry was actually ready for the digital transformation; thus, by 2024, about 50 percent of the European industrial workforce should have a good understanding of AI applications and advanced digital skills. Siemens was calling on all European policymakers, civil society and industries “to turn that dream into reality”.

 

Reference: Siemens’ positions for a stronger Europe in:  https://www.politico.eu/wp-content/uploads/2019/09/Siemens-EU-Industrial-Policy-EN_original.pdf?msg_pos=1&utm_source=POLITICO.EU&utm_campaign=0e9a34f51d-EMAIL_CAMPAIGN_2019_09_13_05_12&utm_medium=email&utm_term=0_10959edeb5-0e9a34f51d-189017225

 






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