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Resilient fiscal policies are needed in the euro area and specifically in the EU states with high debt and deficit levels. Given the modern uncertainties, fiscal policies must be prepared to adapt quickly, with prudence in spending and readiness to respond to possible risks. Two main “sub-unions” play vital role: the Economic and Monetary Union and the Capital Market Union, CMU. The Commission has largely delivered on the individual actions announced in the 2015 CMU action plan and the June 2017 mid-term review.
Background
The Commission acknowledged that the euro area economy is gradually picking up, with consumption emerging as a key driver, besides unemployment remains historically low. Moderating inflation and rising real wages mean families are starting to recover purchasing power; investment is expected to benefit from improving credit conditions and the continued deployment of the Recovery and Resilience Facility, RRF.
Thus, despite geopolitical uncertainty, which is still the main risk to the EU, the conditions for an acceleration of economic activity mentioned in recent Spring Forecast remain in place for the second half of 2024 and next year. In this context, prudent fiscal policies are needed in the euro area and especially in the EU states with high debt and deficit levels.
Source: https://ec.europa.eu/commission/presscorner/detail/da/statement_24_3824
Implementation of the new fiscal rules will result in a fiscal stance that “remains overall restrictive and contractionary”, noted the Eurogroup statement: it is consistent with the need to continue enhancing fiscal sustainability and supporting the ongoing disinflationary process. The “level of restriction” will depend on the length of the adjustment period chosen by the states in the national medium-term fiscal-structural plans to be submitted this autumn.
Part of the challenge is exactly to fill the funding gap: estimates vary, but the order of magnitude of the EU-wide investment needs in the green and digital transition, in energy security, in skills, in defence, etc. is enormous.
It’s clear the private sector needs to do “the heavy lifting”: presently, the corporate sector is suffering from a lack of public investment, as was the case after the global financial crisis. Public investment has increased, but private investment has lagged behind: hence, for the whole Union the Capital Markets Union is a vital priority.
Of course, the public and private sector must work together: this synergy must be exploited in full; besides, some appropriate means must be developed at the EU level in terms of common instruments and financial firepower to meet common challenges.
The steady implementation of the Recovery and Resilience Facility, RRF and the Cohesion Policy programs is continuing to support major reforms and investments across a wide range of policy areas in the member states and support fiscal sustainability. The new Commission’s economic governance framework also continues promoting debt sustainability and forwarding economic growth. According to the latest Eurobarometer survey, the majority of citizens (59%) in non-euro area states think that the common currency has had a positive impact on the states that already use it. A majority (53%) also believe that introducing the euro would have positive consequences for their own country and for them personally (56%).
Overall, 58% of respondents are in favour of their country’s introducing the euro: support is especially pronounced in Romania (77%) and Hungary (76%), followed by Sweden (55%), Czechia (49%), Bulgaria (49%) and Poland (47%). Bulgaria has a higher share of citizens (71%) think that the euro will be introduced within five years; while 64% of Bulgarians think that introducing the euro will increase prices, 44% (up 2 points) think that introducing the euro would have positive consequences for their country.
Reference to: https://ec.europa.eu/commission/presscorner/detail/da/ip_24_3449
Present EU’s economic program
Present Council’s Presidency program is aimed at two main modern challenges: supporting EU-wide competitiveness and new economic governance framework’s implementation. Hence, on the RRF implementation, the Commission has reached €241 billion in disbursements, with 16 payment requests in the pipeline; the expectation is to reach the €300 billion by the end of 2024.
On the European Semester and the EU-wide fiscal rules, as well as on the country-specific recommendations and the macro-economic imbalance procedure, the discussions were positive. In the beginning of July, following the analysis of the excessive deficit procedures warranted for seven member states, the Commission proposed to the Council to adopt decisions establishing the existence of an excessive deficit in those seven states.
As the Commission explained (in the Semester-2024 Package), the transition to the new fiscal rules required this year a different timing of the steps related to the Excessive Deficit Procedures, EDP that is why the next steps on EDP recommendation will be this autumn. This is done to provide for consistency between the EDP corrective path recommendation and the national medium-term plans. Hence the states are expected to submit these documents in autumn (by September 20- October 15); the Commission has noted a widespread support among the states as to this exceptional approach to split the two vital procedures.
The EU’s “convergence report”
The Convergence Report by the European Commission (the last was adopted in June 2024) is the basis for the Commission proposal for a Council of the EU’s decision on the adoption of the euro by all EU member state; the report is published together with the ECB’s Convergence Report. Generally, convergence reports are issued every two years, or when there is a specific request from a member state to assess its readiness to join the euro area.
More in: https://economy-finance.ec.europa.eu/publications/convergence-report-2024_en
All EU member states, except Denmark, are legally committed to join the euro area: Denmark, which negotiated an opt-out arrangement in the Maastricht Treaty, is therefore not covered by the report. The latest Flash Eurobarometer (nr. 548) was conducted in May 2024 in the six non-euro area member states that are legally committed to adopting the euro: Bulgaria, Czechia, Hungary, Poland, Romania and Sweden.
The report concludes that: = Sweden fulfils the price stability criterion; = Bulgaria and Sweden fulfill the criterion on public finances and Czechia is expected to fulfill it on the basis of the Commission report; = Bulgaria, Czechia and Sweden fulfill the long-term interest rate criterion; = Bulgaria fulfils the exchange rate criterion; these states do not participate in the Exchange Rate Mechanism, ERM II (at least two years of participation in the mechanism without severe currency tensions is required before joining the euro area).
Source: https://ec.europa.eu/commission/presscorner/detail/da/ip_24_3449
Despite the shocks of the past few years, the euro remains strong: i.e. it enjoys high levels of support in the EU states, as well as in those outside the euro area) and continues to underpin the EU-wide economic and monetary integration. Bulgaria is the only country that fulfils all but one criterion (on price stability), and where national legislation can be considered to be compatible with the rules of the Economic and Monetary Union, EMU.
More on the EMU in: https://economy-finance.ec.europa.eu/economic-and-monetary-union_en
Capital Market Union
The aim of capital markets union, CMU is to get some of the EU-wide financial resources (e.g. investments and savings) freely flowing across the EU states to benefit consumers, investors and companies. While progress has been made since the CMU initiative was launched in 2015, the EU capital markets remain fragmented: i.e. European citizens and businesses are not able to fully benefit from the deep, competitive, efficient and reliable sources of funding and investment that capital markets can offer.
A strong and complete CMU is needed now more than ever, in order to support the post-pandemic economic recovery and finance the green and digital transitions. In addition, CMU can contribute to a more inclusive and resilient growth in the states, notably by helping them to meet growing global and local challenges (e.g. those posed by an ageing population). Lastly, integrated capital markets are crucial for the EU’s global competitiveness and its autonomy. The Commission has largely delivered on the individual actions announced in the 2015 CMU action plan and the June 2017 mid-term review.
On mid-term review in: https://finance.ec.europa.eu/publications/mid-term-review-capital-markets-union-action-plan_en
The European Parliament and the EU states have so far agreed on 12 legislative proposals put forward by the Commission:
= Simple, transparent and standardised securitisation to broaden investment opportunities and boost lending to Europe’s households and businesses.
= Prospectus regulation to facilitate access to financial markets for companies, particularly small and medium-sized enterprises.
= Several measures relating to collective investment funds, such as setting up the European Venture Capital Fund Regulation (EuVECA) and European Social Entrepreneurship Funds Regulation (EuSEF) to stimulate venture capital and social investment in the EU and facilitating cross-border distribution of collective investment funds to remove burdensome requirements and harmonise diverging national rules.
= Pan-European Personal Pension Product, PEPP to give citizens more and better options for retirement savings.
= Covered bonds to provide a source of long-term financing for banks in support to the real economy.
= Crowdfunding to improve access to this innovative form of finance for start-ups, while maintaining investor protection.
= Investment firms review to ensure a level playing field between the large and systemic financial institutions while introducing simpler rules for smaller firms.
= Preventive restructuring, second chance and efficiency of procedures to provide honest entrepreneurs with a second chance and facilitate the efficient restructuring of viable companies in financial difficulties.
= Promotion of SME growth markets to cut red-tape for small and medium-sized enterprises trying to access capital markets.
= Third party effects on assignment of claims to enhance legal certainty about the applicable national law to the effects on third parties where a claim is assigned cross-border.
= European Supervisory Authorities review including anti-money laundering rules to enhance supervisory convergence and strengthen enforcement, including against money laundering and terrorist financing.
= European market infrastructure regulation (supervision) to ensure that the EU supervisory framework effectively anticipates and mitigates risk from EU and non-EU central counterparties servicing EU clients.
Source: https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/capital-markets-union/legislative-measures-taken-so-far-build-cmu_en
More on CMU-2020 action plan in:
https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/capital-markets-union/capital-markets-union-2020-action-plan_en