Euro Area Policies: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director

Publication Date: July 27, 2015
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Summary: Context. The recovery is strengthening, underpinned by lower oil prices and the ECB’s expanded asset purchase program. But the medium-term outlook remains weak, weighed down by the legacies of insufficient demand, lagging productivity, and weak bank and corporate balance sheets. Policies. A concerted, collective effort is needed to sustain the recovery, avoid overburdening monetary policy, and lift potential growth over the medium term, which would have positive spillovers for the rest of the world: Demand support. Quantitative easing (QE) has boosted confidence and improved financial conditions. The ECB’s clear communication to stay the course on QE until inflation is on a sustained adjustment path will help anchor expectations. Countries should adhere to the SGP, but those with fiscal space should use it to support investment and structural reforms. Balance sheet repair. High non-performing loans (NPLs) in some banks are eroding profitability and discouraging new lending. Complementary policies are needed to incentivize NPL resolution through strengthened prudential supervision, insolvency reforms, and development of distressed debt markets. Asset management companies (AMCs) could help banks to offload NPLs and assist with corporate restructuring. Productivity-enhancing structural reforms. Labor and product market reforms should be combined with faster implementation of the Services Directive, further improvements of insolvency regimes, and a greater push toward a single market in capital, transport, energy, and the digital economy. A capital markets union would help diversify funding sources and reduce reliance on bank lending. Better economic governance. A more effective and simpler governance framework, including a move towards "outcome-based" benchmarking, could help advance   structural reforms, while the fiscal framework could be simplified and strengthened.  
Series: Country Report No. 15/204
Subject(s): Article IV consultation reports | Economic recovery | Demand | Fiscal policy | Fiscal reforms | Banking sector | Bank supervision | European Central Bank | Economic indicators | Statistics | Data quality assessment framework | Staff Reports | Press releases | Euro Area

Publication Date: July 27, 2015
ISBN/ISSN: 9781513505121/1934-7685 Format: Paper
Stock No: 1EUREA2015002 Pages: 56
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