Good morning.
We made it. After several months of intense negotiations and a very tough and long meeting we delivered a comprehensive plan to strengthen the euro. A plan that is agreed by all of us. I will come to that in a second. Let me run you through the rest of the Eurogroup agenda, which was already packed.
We started our meeting with an overview of the euro area economy. The IMF presented their initial views based on the so-called article IV mission. Given the current risks to our economic outlook, the IMF’s view that building buffers is needed at the current juncture is broadly shared.
We then moved on to Greece. It has been a while since we discussed Greece and that is a good thing. The Commission presented the first enhanced surveillance report – the Eurogroup will be following these reports on a quarterly basis. This first report shows some good results. Ministers welcomed that the primary surplus target of 3.5% of GDP is projected to be met in 2019. It’s the third year in a row this happens. This shows that the Greek authorities are committed to a sound fiscal path.
At the same time, further progress is clearly needed in some areas. This includes privatisation, arrears clearance, insolvency legislation and product market reforms. We all agree that it is paramount to continue the good work initiated in recent years by implementing the reform agenda. That is the sustainable path towards increasing Greece’s growth potential.
We then discussed Spain and Cyprus on the basis of post-programme surveillance. Both economies are performing well.
We particularly welcomed the strengthening of the Spanish financial sector.
We praised the fiscal performance of Cyprus and emphasised the need to reinforce the NPL reduction strategy and overall reform momentum.
A highlight was our discussion on draft budgetary plans of our euro area member states, following the 19 opinions provided by the Commission. There is a more detailed statement on this precise issue.
I need to remark that it is the 6th time that this exercise is conducted and it is the first time ever that no country is expected this year to register an excessive deficit, meaning above 3% of GDP.
The case of Italy deserved special attention, since the Commission identified a particularly serious non-compliance in the Italian budget plan.
We support the assessment by the Commission and recommend that Italy takes the necessary measures to be compliant with the Stability and Growth Pact.
Sound public finances are a condition for sustainable growth.
Respecting the rules that underpin our currency is essential to ensure consistency and stability in the euro area.
Going forward, we welcome and we support the ongoing dialogue between Italy and the Commission in pursuit of common ground.
We also adopted a work programme for the first half of 2019. And we had a sneak preview of the Commission’s plans to reinforce the international role of the euro. The Commission will issue a Communication on this, which we will study carefully - we will come back to this next year. Advancing on our plans to reform the euro area is a good contribution to enhance the international role of our single currency.
So now, on EMU reform, this was really the biggest topic on our agenda. Our plans for the future of the euro area.
Our aim was to agree on a report to deliver to the Euro Summit next week. Very hard negotiation, but I think the result is a breakthrough on some key issues.
The outcome of our deliberations is a report to the Leaders with 3 annexes:
- the terms of reference of the backstop
- the term sheet on ESM reform
- the ESM-Commission cooperation agreement.
My team is still consolidating the texts agreed, after this very intense and exhaustive negotiation.
This will be delivered to you shortly. I will then deliver this outcome in person to President Tusk this afternoon.
We have agreed to enhance the role of the ESM to further strengthen the crisis prevention and resolution capabilities of the euro area. We will also increase the effectiveness of ESM precautionary instruments. At the same time, we reaffirmed that ESM support is a last resort and that we need to ensure an appropriate level of conditionality.
Ministers very much welcome the agreement reached between the ESM and the Commission, which will improve cooperation within and outside financial assistance programmes.
Our agreement on the backstop to the Single Resolution Fund is an important step to further strengthen the credibility of the Banking Union. The backstop will be introduced earlier than the originally foreseen date of 2024, provided that sufficient progress with risk reduction is achieved by 2020.
Ministers also agreed on a process to promote debt sustainability in the euro area. To this end, we will introduce single-limb collective action clauses, known as CACs, by 2022.
This is not the end of the road in our plans to reinforce the euro. We will build on progress made to continue to work next year.
As regards the instruments for competitiveness and convergence, France and Germany proposed an architecture for the Eurozone budget, which would be part of the EU budget. Subject to a mandate to be given by the Euro Summit, work could proceed on the design, implementation and timing of such an instrument for convergence and competitiveness.
The possible features of a stabilization function were also discussed, including the unemployment insurance scheme. We did not reach a common view on the need and design of such a function but technical discussions continue.
More work is also needed on EDIS before we can agree on a roadmap to begin political negotiations. The news here is that we will establish a high-level working group with a mandate to work on next steps and report back in June 2019.
We will continue working on all possible solutions to the limitations in the current set-up for liquidity provision in bank resolution.
Finally, the preparation of an ESM Treaty change is another future undertaking.
To conclude, this was a good moment to mark in the Eurogroup the 20th anniversary of the start of the euro.
We demonstrated - yet again - our political commitment to the single currency by building bridges between our national positions and taking steps to collectively keep our economies out of trouble.
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Eurogroup Statement on the Draft Budgetary Plans for 2019
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The Eurogroup welcomes that all 19 Member States have submitted Draft Budgetary Plans (DBPs) for 2019. Greece is part of this exercise for the first time, following the end of the macro-economic adjustment programme. On 21 November, the Commission provided in-depth individual assessments and Opinions, together with an analysis of the budgetary situation in the euro area as a whole.
We note that Luxembourg, Latvia and Slovenia submitted DBPs on a no-policy-change basis. We invite them to submit the updates of their DBPs as soon as possible and look forward to the Commission assessment of those updates.
The euro area is entering its sixth year of growth, although growth has peaked and downside risks have increased. The strength of the domestic drivers is supportive of the continued activity growth and unemployment reduction. According to the Commission autumn forecast, the aggregate deficit in the euro area is expected to further decline from 1% in 2017 to 0.6% of GDP in 2018, although an increase to 0.8% of GDP is forecast in 2019. For the first time since the introduction of the euro, in 2019 no euro area Member State is expected to have a deficit above 3% of GDP. Aggregate debt in the euro area is set to be on a downward path, from 89% of GDP in 2017 to 87% of GDP in 2018 and 85% of GDP in 2019.
Current economic conditions call for the urgent need to rebuild fiscal buffers, notably in Member States that have not reached their Medium-Term Budgetary Objectives (MTO). The Eurogroup reiterates that a slow pace of debt reduction from high levels in a number of Member States remains a matter for concern and should be decisively addressed. In this context, the fiscal expansion or limited structural fiscal adjustment expected in some Member States in 2019 is worrying, in particular when coupled with high medium term sustainability risks. The Eurogroup recalls in this context that the focus on sufficient debt reduction and the adjustment towards the MTO are an integral part of the Stability and Growth Pact (SGP). The Eurogroup also recalls that country-specific recommendations adopted by the Council on 13 July 2018 include detailed and quantified fiscal policy guidance, taking into account the need to strengthen the growth potential and sustainability concerns.
The Eurogroup underlines that Member States are in very different budgetary situations.
The Eurogroup recalls that in its opinion issued on 23 October 2018 the Commission identified a particularly serious non-compliance with the recommendation addressed to Italy by the Council on 13 July 2018 and requested a revised DBP. Italy submitted a revised DBP on 13 November, on which the Commission issued another opinion on 21 November, confirming the existence of a particularly serious non-compliance with the Council recommendation. We support the Commission assessment and recommend Italy to take the necessary measures to be compliant with the SGP. We also support the ongoing dialogue between the Commission and the Italian authorities.
The Eurogroup takes note that, according to the Commission assessment, five Member States' plans are deemed to be at risk of non- compliance with the SGP in 2019: Belgium, France, Portugal, Slovenia, under the preventive arm of the SGP and Spain, assessed under the assumption of a timely and durable correction of the excessive deficit. According to the Commission assessment, the DBPs of these Member States might result in a significant deviation from the adjustment path towards their respective MTOs. In addition, Belgium, France, Portugal and Spain are not expected to comply prima facie with the debt reduction benchmark in 2019. The Eurogroup invites all these Member States to consider in a timely manner the necessary additional measures to address the risks identified by the Commission and to ensure that their 2019 budget will be compliant with SGP provisions.
Based on the Commission assessment, three Member States’ plans are deemed to be broadly compliant with the SGP in 2019: Estonia, Latvia and Slovakia, all under the preventive arm of the SGP. The Eurogroup invites these Member States to ensure compliance with SGP provisions within the national budgetary processes and welcomes their commitment to take any necessary measures.
The Eurogroup welcomes that ten Member States' plans are deemed to be compliantwith the SGP in 2019: Austria, Cyprus, Finland, Germany, Greece, Ireland, Lithuania, Luxembourg, Malta and Netherlands, all under the preventive arm of the SGP. The Eurogroup also welcomes that some of the Member States that have outperformed their medium term objectives have plans to partly use their favourable budgetary situation in 2019 to boost investment and growth, while preserving the long-term sustainability of public finances.
We will continue to monitor euro area Member States' fiscal and economic policies, as well as the budgetary situation of the euro area as a whole.
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