2018 OECD ECONOMIC SURVEYS OF THE EURO AREA and the EUROPEAN UNION
Reforms for a stronger and more integrated Europe Brussels, 19 June 2018 http://www.oecd.org/eco/surveys/economic-survey-european-union-and-euro-area.htm
@OECDeconomy @OECD
The economy is expanding Real GDP growth in the Euro areaยน, year-on-year % changes 4
4
2
2
0
0
-2
-2
-4
-4
-6
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
1. Euro area member countries that are also members of the OECD (16 countries). Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).
2017
-6
2
Unemployment continues to fall Unemployment rate in the Euro areaยน, as a % of the labour force 14
14
12
12
10
10
8
8
6
6
4
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
4
1. Euro area member countries that are also members of the OECD (16 countries). Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database). 3
Inflation is still below target Harmonised consumer price indices in the Euro areaš, year-onyear % changes 3.5
Headline inflation
3.5
Core inflation²
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
2010
2011
2012
2013
2014
2015
2016
1. Euro area member countries that are also members of the OECD (16 countries). 2. excluding energy, food, alcohol, and tobacco. Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).
2017
-0.5 2018
4
ECB policy has remained accommodative Stock of central banks’ total liabilities (% of GDP) 100
100 Euro area
Japan
United States
80
80
60
60
40
40
20
20
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0 2018
Source: Thomson Reuters (2018), Datastream Database and OECD (2018), OECD Economic Outlook: Statistics and Projections (database). 5
Public debt remains high Public debt (% of GDP) 200
2017
180
200
2007
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
EST
LUX
LTU
LVA
SVK
NLD
FIN
DEU
IRL
SVN
AUT
EA
FRA
ESP
BEL
PRT
ITA
GRC
Note: Maastricht definition. Euro area member countries that are also members of the OECD (16 countries) and Lithuania; weighted average. Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).
0
6
Non-performing loans are still high Non-performing loans as a percentage of capital (net of provisions) Q4 2017ยน 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
-10
MEX CHL ISR LVA KOR TUR GBR EST CHE LUX CAN ISL HUN USA SVN NOR AUS JPN POL SWE SVK FIN AUT CZE DEU DNK FRA BEL OECD ESP LTU NLD IRL EA PRT ITA GRC
90
-10
1. Or latest observation available. Source: IMF (2018), Financial Soundness Indicators (database), International Monetary Fund, Washington, D.C. 7
Private debt remains high Private debt (% of GDP) 400
2017²
400
2007
350
407
484
350
300
300
250
250
200
200
150
150
100
100
50
50
0
LTU SVN GRC SVK DEU LVA AUT
ITA
EST
EA¹
ESP OECD FIN
FRA NLD PRT BEL
Euro area member countries that are also members of the OECD (16 countries) and Lithuania; weighted average. 2. Or latest year available. Source: OECD (2018), OECD Economic Outlook: Statistics and Projections (database).
IRL
LUX
0
1.
8
Macroeconomic policies to ensure a sustainable expansion 1. Keep committing to accommodative monetary policy until headline inflation is durably back to the objective, but gradually reduce support. 2. As the expansion continues, euro area countries should ensure their fiscal position improves, gradually reducing debt ratios. 3. Eventually, countries should follow an expenditure objective that ensures a sustainable debt-to-GDP ratio. 4. The European Fiscal Board could assess the appropriate fiscal stance for each country consistent with the optimal stance at the euro area level. 9
Recommendations to strengthen financial stability 1. To limit side effects of accommodative monetary policy, encourage policy measures such as lower loan-to-value or add-on capital requirements. 2. To better gauge commercial real estate price dynamics, systematically collect harmonised data.
10
Reforms to strengthen the monetary union
11
The crisis halted convergence GDP per capita relative to EA16=100ยน, per cent Germany
France
Italy
Spain
Portugal
120
120
110
110
100
100
90
90
80
80
70
70
60
1990
1995
2000
2005
2010
2015
1. Euro area member countries that are also members of the OECD (16 countries), populationweighted average (PPP-adjusted). Source: The Conference Board (2018), Total Economy Database.
60
12
Cross-border risk sharing is limited Percentage of absorbed shocks through private and public risk sharing 90
Risk sharing through fiscal transfers
Risk sharing through private financial flows
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
Euro area
United States
0
Source: European Commission (2016), "Cross-Border Risk Sharing after Asymmetric Shocks: Evidence from the Euro Area and the United States", Quarterly Report on the Euro Area 15(2), Brussels. 13
Reforms should reduce links between banks and their own State Share of domestic sovereign bonds in banks portfolios, March 2018 (%) 100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
LUX
IRL
EST
FIN
NLD
BEL
AUT
SVN
LVA
DEU
PRT
EA
ESP
GRC
FRA
ITA
SVK
LTU
0
Source: OECD calculations based on ECB (2018), “Balance Sheet Items statistics”, Statistical Data Warehouse, European Central Bank.
14
The supply of European safe assets is limited Debt securities issued by governments and European institutions As a percentage of euro area GDP, 2016
30
30
25
25
20
20
15
15
10
10
5
5
0
1. 2.
Triple A-rated national debts š
European Institutions ²
0
Sovereign debt securities issued by the governments of Germany, Luxembourg and the Netherlands. Triple A-rated securities issued by the EU institutions and authorities (EIB, ESM, EFSM, BOP Facility and the Macro-Financial Assistance Programs.
Source: Brunnermeier, M. et al. (2017). ESBies: Safety in the tranches. Economic Policy, 32(90), 175-219; OECD calculations based on public information released by European Institutions.
15
Most countries would benefit from the unemployment re-insurance scheme Cumulative payments received from the unemployment reinsurance scheme 2002-2016 (% of GDP) 6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
2.0
2.0
1.0
1.0
0.0
FIN
BEL
FRA
LUX
AUT
DEU
NLD
ITA
SVN
GRC
ESP
PRT
IRL
0.0
Source: : Claveres and Stráský (2018) based on OECD (2018), OECD Economic Outlook: Statistics and Projections (database) . 16
European capital markets need to expand Outstanding loans and bonds of non-financial corporations as a % of GDP 50
50
45
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
Loans
Bonds Euro area
Loans
Bonds
0
United States
Note: Average 2015-2017. Source: Eurostat, European Central Bank, US Bureau of Economic Analysis, Board of Governors of the Federal Reserve System, and Securities Industry and Financial Markets Association. 17
Recommendations to reduce financial fragmentation and increase private risk-sharing 1. Implement swiftly the ECOFIN action plan on non-performing loans and facilitate the creation of asset management companies. 2. Building on progress in risk-reduction, develop a pre-funded common deposit insurance scheme with risk-based contributions by banks. 3. Use the European Stability Mechanism as a fiscally-neutral backstop for the Single Resolution Fund that can be deployed rapidly. 4. Diversify banks’ exposure to sovereign bonds, including by sovereign concentration charges in parallel with a European safe asset.
18
Recommendations to strengthen resilience through a common fiscal capacity 1. Set up a fiscal stabilisation capacity in the form of an unemployment benefit reinsurance scheme that can borrow in financial markets. 2. Make access to the common fiscal stabilisation capacity conditional on past compliance with fiscal rules.
19
Improving growth and living standards
20
Productivity growth has declined Output per hour workedยน, annualised growth rates (%) 6
6 1990-2000
2000-2007
2007-2016
5
5
4
4
3
3
2
2
1
1
0
EU
OECD
Non-OECD
1. Productivity is measured as output per employee for Non-OECD countries. Source: OECD estimations using OECD National Accounts database; OECD Productivity database; International Labour Organisation database.
0
21
There is room to ease regulatory burdens
0.6
STRI indexยน for professional services, from completely open (0) to completely closed (1), 2017
More restrictive
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0 Less restrictive
EUROPEAN UNIONยน
OECD
3 best performing countries
3 worst performing countries
0
1. Services Trade Restrictiveness Index. 2. EU countries that are also members of the OECD (22 countries) and Lithuania. Source: OECD (2018), OECD STRI Index (database). 22
Many individuals still lack digital skills Percentage of 16-74 year-olds who lack basic digital skills, 2017
ITA
POL
GRC
PRT
LVA
IRL
HUN
SVN
ESP
LTU
FRA
EU28
SVK
0
EST
0
CZE
10
BEL
10
AUT
20
DEU
20
GBR
30
DNK
30
FIN
40
SWE
40
NOR
50
NLD
50
LUX
60
ISL
60
Source: Eurostat (2018), "Individuals' level of digital skills", Eurostat Database.
23
Recommendations to improve long-term growth 1. Address barriers in the business services sector through simplified administrative formalities. 2. Pursue cross-border co-operation on energy through better power system operation and trade. 3. Develop tools to help member states monitor digital skill needs. Set EU standards for the monitoring of digital skills and task content of occupations.
24
Reforming the EU budget
25
The EU budget is small EUR thousand of billions, 2016 16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
0
EU gross national income
EU Member States' total public expenditure
EU annual budget
0
Source: European Commission. 26
The EU budget has declined over time Per cent of gross national income 1.3
1.3
1.2
1.2
1.1
1.1
1.0
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.5
Average 1993-1999
Average 2000-2006
Average 2007-2013
Average 2014-2020
0.5
Source: European Commission.
27
Producer support to agriculture remains high Percentage of farm receipts, 2016 25
25
20
20
15
15
10
10
5
5
0
EUROPEAN UNIONยน
Best performing non EU OECD countries
0
1. European Union refers to all 28 members of the European Union. Source: OECD (2018), OECD, Producer Support Estimate Database.
28
There is scope to increase the EU research and innovation budget 2014-2020 multiannual financial framework Others
Research and innovation, education
14% 39%
13%
Cohesion policy
Agriculture, rural development and fisheries
34%
Source: European Commission. 29
Recommendations to reform the EU budget 1. Consider enhancing the efficiency of spending and increasing revenues, and reassess how the European budget is financed 2. Phase out production-based payments in the Common Agricultural Policy 3. Increase research and development (R&D) spending 4. Increase spending on mobility programmes such as Erasmus+, and facilitate access irrespective of socio-economic background
30
Reducing regional divides
31
Regional convergence stopped after the crisis Coefficient of variation in regional GDP per capitaยน , %
Convergence Divergence
1. Disparities in GDP per capita (in PPS) between NUTS-2 EU regions; population-weighted. Source: European Commission (2018), DG for Regional and Urban Policy, calculations based on Eurostat data. 32
Spending of structural funds is slow Spending as a % of planned investment in the 2014-2020 programming period, as of end 2017 40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
ITA ESP SVK SVN CZE BEL POL HUN GBR LVA GRC FRA EU28 DNK EST LTU DEU NLD PRT SWE IRL AUT LUX FIN
0
Source: European Commission (2018), Open Data Portal for the European Structural and Investment Funds (https://cohesiondata.ec.europa.eu/) 33
The management of structural funds could improve Implementation errors found by the European Court of Auditorsยน Serious errors Significant errors
22%
Minor errors
29%
49% 1. Errors detected between 2009 and 2013. Source: European Court of Auditors (2015), "Efforts to address problems with public procurement in EU cohesion expenditure should be intensified", Special Report N0. 10. 34
Recommendations to reduce regional divides 1. Prioritise cohesion funding to less developed regions. 2. Better target cohesion funding on human capital, innovation and network infrastructure. 3. Consider increasing national co-financing rates to encourage better project selection. 4. Create a “single rule book� for EU funding programmes to facilitate spending. 5. Use e-government and e-procurement more often to facilitate control of spending. 35
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