Economic surveys and country surveillance

Economic Survey of the Euro Area 2014


European Union survey  | Press Release  |  Additional information

OECD Economic Surveys: Euro Area 2014


Remarks, OECD Secretary-General Angel Gurría 

The euro area economies appear to be turning the corner towards slow recovery against improving confidence, fiscal and current account imbalances and competitiveness in many vulnerable countries. However, weak private sector balance sheets still bear on growth and employment creation. With inflation rates substantially below the ECB’s objective and output below its potential, monetary policy should remain accommodative for an extended period of time. However, to bring debt to more prudent levels, fiscal consolidation needs to continue, although its composition should be better geared in favour of inclusive growth and employment. Structural reforms can put the rebalancing process on a more sustainable footing.


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Towards a banking union

The crisis left Europe with high non-performing loans, fragmented capital markets and a negative feedback loop between sovereigns and banks. To strengthen growth and restore credit flows banks’ balance sheets need to be cleaned and strengthened. Thus, it is important to ensure that the ongoing Comprehensive Assessment of banks leads to a consistent overall evaluation of the quality of banks’ balance sheets. Based on the results of this assessment, banks need to be recapitalised or resolved if necessary. While much has been achieved in setting up a banking union that is expected  to improve the functioning of the credit system and reduce systemic financial market risks,  breaking the bank-sovereign link and zero risk weights on sovereign debt remain an issue. Also, it is important to ensure that a single resolution mechanism with effective and swift decision-making is operative soon after the Single Supervisory Mechanism is in place, along with effective resolution funding arrangements.

Fiscal governance is being strengthened

Several EU-level agreements have been implemented to reinforce fiscal and economic governance and co-ordination. The new governance elements include expenditure and debt rules, ex ante opinions of draft budgets and a requirement to make significant progress towards medium-term budgetary objectives (MTOs). However, the multiplicity of these rules makes the new fiscal framework complex, reinforcing the need to foster “ownership” in the consolidation process. Effective implementation of the strengthened EU and Fiscal Compact rules in national fiscal frameworks needs to be ensured, including with medium-term budgeting, identification of future spending and revenue pressures and risks, independent fiscal councils and effective mechanisms to correct deviations from fiscal targets.

For further information please contact the Euro Area Desk at the OECD Economics Department.

The OECD Secretariat's report was prepared by Eckhard Wurzel and Jean-Marc Fournier under the supervision of Piritta Sorsa. Research assistance was provided by Isabelle Duong.

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