Economics Department

Economic Survey of Euro Area 2010

 

How to obtain this publication | Additional information

 

Overview of the Economic Survey of Euro Area

 

Presentation by Mr. Pier-Carlo Padoan, OECD Deputy Secretary-General and Chief Economist

The euro area has experienced a severe recession, followed by a sovereign debt crisis. Swift policy action helped to stabilise the economy and a modest recovery is now underway, although risks remain. Structural reforms would facilitate on-going economic adjustment and lift growth prospects.

Excessive economic, financial and fiscal imbalances built up in some euro area countries during the upswing, misallocating resources and creating growing vulnerabilities. Diverging pressures on national economies were compounded by movements in real interest rates. The banking system channelled funds from countries with high savings to deficit economies. Market discipline, together with fiscal and financial policies, failed to prevent the build-up of imbalances. Rebalancing economies with large imbalances has already begun, but will be a difficult and prolonged process.

Current account balances(1)
As a percentage of national GDP


(1) The shaded area indicates the range between the 25th and 75th percentiles.
Source: OECD, OECD Economic Outlook Database.

Download underlying data in Excel

A new cross-cutting approach to economic and financial management is required to avoid future imbalances. This should rest on a broad range of policies, including sound fiscal policy and macroprudential tools. Stabilisation would be facilitated by structural policies that help economic adjustment, including reforms to wage setting mechanisms and housing policies. Surveillance of country-level imbalances should be stepped up.

The fiscal position has deteriorated sharply, leading to large deficits and adding to high debt levels. Some countries have experienced financing pressures. Detailed multi-year plans to stabilise the public finances are required. Prolonged fiscal consolidation and reforms will be needed to bring debt to a more prudent level, increase the ability to withstand future shocks and to prepare for future ageing costs.

Market discipline and fiscal frameworks should be strengthened. A permanent crisis management framework should be put in place subject to strong conditionality. Stronger governance should be pursued through a reinforced Stability and Growth Pact (SGP) and better enforcement of the rules through a set of credible sanctions. Fiscal frameworks at the national level should be improved through well-designed independent national fiscal councils to make forecasts and assessments of fiscal policy.

Weaknesses in financial regulation and supervision created, as in other OECD economies, an environment prone to excessive risk-taking and unsustainable credit cycles. Significant steps have already been taken by the EU authorities to tighten financial regulations and in creating the European Systemic Risk Board (ESRB). A national counter cyclical capital buffer should be introduced in line with Basel III. The activities of systemic banks should be more closely regulated.

The new cross-border supervisory framework is a major achievement, including the setting up of the European Supervisory Authorities and an enhanced system of supervisory colleges. These arrangements should be reviewed in the coming years to determine whether a single supervisor would be more fit for the purpose. Burden-sharing agreements should be in place. There should be an effective  set of resolution tools in all EU countries. Subject to appropriate regulation, removing obstacles to financial integration would help create a more stable banking system.

 

How to obtain this publication

The complete edition of the Economic Survey of Euro Area is available from:

 

Additional information

For further information please contact the Euro Area Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Sebastian Barnes and Artur Radziwill under the supervision of Piritta Sorsa. Statistical research and editorial assistance was provided by Isabelle Duong.

 

www.oecd.org/eco/surveys/euroarea

 

 

 

 

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