Economic policy of the euro area - Main contents

EN

Official Journal of the European Union

C 92/1

Economic recovery in the euro area continues, but remains fragile. There has been significant progress in recent years: since 2015, euro area gross domestic product (GDP) has recovered its pre-crisis level in real terms and unemployment has declined to its lowest level since 2010-2011. However, aggregate demand is sluggish, inflation is well below target, in spite of very accommodative monetary policy by the European Central Bank, and growth is hindered by the legacies of the crisis, such as persisting macroeconomic imbalances and a high level of indebtedness in all sectors of the economy, which require deleveraging and reduce resources available for consumption and investment. Additionally, while the growth potential of the euro area economy has been on a long-term downward trend, that trend has been further accentuated by the crisis. In spite of signs of improvement, the persistent investment gap and high level of unemployment risk further dampening growth prospects. The asymmetric nature of the rebalancing in the euro area economy has continued, with only net debtor countries correcting their imbalances, and is resulting in an increasing current account surplus. In the framework of the global agreement within the G20, the euro area Member States are called upon to use all policy tools, including fiscal and structural — individually and collectively — to achieve strong, sustainable, balanced and inclusive growth.

Ambitious structural reforms should facilitate the smooth and efficient reallocation of human and capital resources and help to address the challenges posed by ongoing technological and structural changes. Reforms that create an enabling business climate, complete the Single Market and remove barriers to investment are necessary. Those efforts are crucial for increasing productivity and employment, strengthening convergence and enhancing the growth potential and adjustment capacity of the euro area economy. Structural reform implementation, by creating efficient markets with responsive price mechanisms, would support monetary policy through facilitating its transmission to the real economy. Reforms that remove investment bottlenecks and support investment can bring a double benefit by supporting economic activity in the short term and creating capacity for long-term sustainable and inclusive growth. Reforms that improve productivity are particularly important for Member States with large deleveraging needs linked to high external debt, as faster growth helps to reduce the debt as a share of GDP. Boosting price- and non-price competitiveness would further contribute to external rebalancing in those countries. Member States with large current account surpluses can contribute to euro area rebalancing by introducing measures, including structural reforms, that facilitate channelling the excessive savings to domestic demand, in particular by strengthening investment. The current environment of low interest rates also offers additional opportunities in that regard, in particular in Member States with significant fiscal space.

Better coordination of the implementation of structural reforms, including those prescribed in the country-specific recommendations and those needed to complete the Economic and Monetary...