Europe’s reforms beginning to pay off – OECD
Action taken by many European countries to return their public finances to health are beginning to pay off, says the OECD.
The Euro area economies which emerged from the crisis with serious current account deficits are now in surplus. Debt-to-GDP ratios are stabilising and market tensions have abated.
Although Europe’s economies are slowly growing again, they face daunting challenges. Joblessness remains high, and youth unemployment in some countries has risen above 30%.
Two new OECD reports – on the Euro area and on the EU as a whole – set out the policies needed to reinforce sustainable economic growth and tackle the increase in inequality across European society.
“Fiscal consolidation has made much progress, but government debt in many countries is still too high,” said OECD Secretary-General Angel Gurría.
“Continued consolidation is needed, but without losing sight of the need to support inclusive growth and job creation.”Reforms to strengthen the banking sector, reinforce the single market and foster new sources of growth in a low-carbon economy are also crucial. Presenting the reports in Brussels with European Commission Vice-President Joaquín Almunia, Mr Gurría added, “Restoring credit flows and investment is also crucial. So the sooner banks’ balance sheet problems are tackled the better.”
The Euro area survey says the methodology for banks’ asset risk weighting should be improved and made more transparent. It welcomes the development of the Single Supervisory Mechanism but, in assessing risk, suggests more attention should be given to the “leverage ratio”, which measures a bank’s capital relative to its non-weighted assets.
At the same time, greater competition is essential to promote the labour and product market mobility necessary for dynamic economies to thrive. The Economic Survey of the EU says a number of countries such as Ireland, Greece, Portugal and Spain have made considerable progress in implementing the structural reforms needed to modernise their economies.
But it adds that deeper and broader action is needed across Europe. Initiatives such as the European Semester and Horizon 2020, designed to support growth and innovation have only had limited effect so far as national ownership has been weak and regulatory costs high, the report adds.
To reinvigorate the Single Market, the European Services Directive needs to go further, the report says. Different rules across EU countries make it hard for firms to adapt. Co-operation between national regulators could be strengthened and labour mobility boosted by developing automatic recognition of qualifications.
Progress toward a low carbon economy should remain a priority, and the EU should adopt an ambitious 2030 emission target. The renewable energy target and subsidy schemes should avoid creating distortions within the Single Market.
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