European Union

Launch of the economic surveys 2018 of the EU and the Euro Area

 

Remarks by Angel Gurría, OECD Secretary-General

19 June 2018, Brussels, Belgium

(As prepared for delivery)

 

Ladies and Gentlemen,


I am delighted to be here today to present the 2018 OECD Economic Surveys of the European Union and the Euro Area.


The economic expansion continues

After years of crisis, growth in the EU has picked up momentum, and is projected to remain solid, at 2.3% in 2018 and 2.1% in 2019. EU-wide unemployment, at 7.1%, is now below its pre-crisis low, although unemployment rates remain above pre-crisis levels in countries like Greece, Spain and Italy.


The improvement in economic conditions is certainly welcome news, but we cannot afford to be complacent.


For one thing, a continuation of growth in the near term cannot be taken for granted. Trade tensions have already dented business confidence, and they could escalate.


Also, Europe is rapidly ageing and productivity growth is weak, which constitutes a key medium-term challenge.


In this context, our surveys on the EU and the euro area identify ways to make the euro area less vulnerable to future economic crises and to strengthen the cohesion of the EU project. I would highlight the following key messages from the Surveys.

 

Reforming the European Monetary and Economic Union

The euro area has, contrary to many predictions, survived the crisis and improved its functioning. However, the single currency project remains fragile. Deeper reforms of the euro area architecture are urgently needed to make it more resilient.


Firstly, we should complete the Banking Union, which still has key missing pieces.

  • We need a fiscal backstop to the Single Resolution Fund. It could take the form of a European Monetary Fund, as has been proposed.

  • We need to reinforce the guarantee of bank deposits through a common European deposit insurance scheme.

  • We need to break the negative feedback loop between banks and their States. The creation of a new European safe asset, combined with the introduction of capital surcharges on excessively high exposure to a single country, would support the diversification of banks’ exposure to sovereign bonds.


Secondly, we need stronger macro-economic policies to protect euro area members from future crises. The ECB shored up the euro area in 2011-12, but we have seen the limitations of monetary policy on its own when the economy is on the edge of deflation. A shared fiscal stabilisation tool is needed to help cope with the next big crisis. We propose a euro area unemployment re-insurance benefit scheme. The Commission’s recent proposal of a European Investment Stabilisation Function would also be a step in the right direction.


Finally, advancing the Capital Markets Union is also essential to better integrate capital markets across the euro area and improve its resilience. In the euro area, outstanding corporate bonds amount to only about 10% of GDP, compared to over 40% of GDP in the United States.


Boosting productivity growth

Productivity growth in Europe is weak, which holds back improvements in living standards.


Europe should revive the single market project. It is one of the EU’s greatest achievements, but there are still many barriers in services, energy, transport, and digital markets, which reduce efficiency and competition.


There is scope to ease regulatory burdens and address barriers to trade in services and improve cross-border cooperation in the energy sector.


The digital age is upon us across the globe. Europe is certainly on track, with the digital economy developing quickly. But there is room for improvement. Over 40% of European adults still lack digital skills, with wide variation among countries. The EU can help member states boost digital skills acquisition by supporting countries in monitoring skills needs. Continual investment in digital infrastructures is critical to bridge digital divides.


Reforming the EU budget to deliver stronger and more inclusive growth

With the negotiations of the next EU budget underway it is a good moment to rethink the EU budget. 


The EU budget, amounting to just 1% of annual EU Gross National Income, is already stretched, and there are new financing needs. Reforming the budget has become even more urgent with Brexit: the UK departure will lead to a gap of about 7% of the annual budget after 2020.


There is scope to increase member states’ contributions, including by ensuring that the financing of the European budget reflects countries’ ability to pay.


Resources to finance growth-enhancing spending, including R&D, could be freed up by phasing out production-based payments in the Common Agricultural Policy and better targeting regional policy to lagging regions.


More funding to support the career and mobility opportunities of less qualified workers, especially youth, would be helpful.


Reducing regional divides

The final challenge I want to highlight is the issue of regional divides. Regional disparities in GDP per capita narrowed before the crisis, but have widened again since.


To further support regional convergence, funding should focus on items with long-term growth benefits, including education and training, innovation and network infrastructure.


There is too much focus on spending regional funds and not enough on the quality of investment. Higher co-funding rates could encourage better project selection. There is scope to reduce administrative burdens through the set-up of a “single rule-book” with a common set of rules and definitions.

 

Ladies and Gentlemen,

The future is becoming increasingly uncertain, but Europe has shown its capacity to survive difficulties by jumping ahead when needed. European leaders and institutions need to remain proactive and strive to make Europe work for all: this will ensure a bright future for the European project, which remains a huge achievement after centuries of war on this continent.


Count on the OECD’s support to continue designing, developing and delivering better policies for better lives in the European Union.


Thank you.