Analytics, EU – CIS, Financial Services, Modern EU
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Friday, 29.03.2024, 16:17
Financing convergence and competitiveness: new efforts in the eurozone states
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.
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”.
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