{ "title": "Euro Area—IMF Staff Concluding Statement of the 2019 Article IV Mission", "publication": "IMF News, June 13, 2019", "sourceUrl": "https://www.imf.org/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission", "overlayPath": "/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/index.md", "summary": "The euro area is at a challenging juncture. Growth is expected to firm-up later this year but there are significant risks to this outlook.", "publishDate": "2019-06-13", "sections": [ { "heading": "Overview", "content": "- The euro area is at a challenging juncture. Growth is expected to firm-up later this year but there are significant risks to this outlook.\n- Greater structural reform efforts at the national level would enhance the region’s resilience.\n- In the event of a sharp downturn additional policy support will be needed.\n- While there is some progress on euro area reforms, in many cases political consensus on the path forward is missing.\n- The incoming European Parliament and European Commission should use the opportunity to forge a renewed consensus around strengthening the foundations of the monetary union." }, { "heading": "Outlook and Risks", "content": "- Growth has slowed and inflation continues to disappoint.\n- Growth decelerated sharply in the second half of 2018 due to slowing external demand and mostly temporary domestic factors.\n- Headline inflation has fluctuated with energy prices; core inflation has remained troublingly low despite declining unemployment and a gradual pickup in wage growth.\n- Growth should firm up over the course of this year, premised on:\n - continued robust domestic demand on the back of a tight labor market,\n - a global recovery, and\n - continued monetary accommodation.\n- Inflation is forecast to reach the ECB’s objective only gradually, reflecting subdued core inflation.\n- Little progress has been made on reducing imbalances: the euro area current account surplus has narrowed slightly, but is still assessed by IMF staff to be moderately stronger than warranted by fundamentals, primarily driven by a few countries with sizable current account surpluses.\n- Three serious risks could derail the upswing:\n - Prolonged global trade tensions undermining external demand.\n - The risk of a no-deal Brexit remains high; the financial sector has made progress preparing, but firms in other sectors—especially smaller firms—are less prepared.\n - High-debt countries’ failure to rebuild fiscal buffers and implement structural reforms, leaving them vulnerable to shifts in market sentiment and the next downturn.\n- These risks could materialize synchronously; even without a major shock, the euro area could experience a prolonged period of anemic growth and inflation." }, { "heading": "Monetary and Fiscal Policy", "content": "- Persistent undershooting of the inflation objective calls for prolonged monetary accommodation, though this carries risks.\n- The ECB’s stance is already accommodative; recent further extension of its forward guidance should support a sustained pickup in inflation.\n- Risks of prolonged low rates:\n - Heterogeneity in cyclical conditions across countries could lead to financial stability risks in countries with positive output gaps.\n - Macroprudential policy tools should be actively deployed to contain these risks.\n - If the inflation outlook is downgraded further, even greater accommodation will be needed.\n- Fiscal rule compliance and enforcement need improvement now:\n - Despite robust growth in recent years, high-debt countries have not sufficiently consolidated and in some cases have eased fiscal policy.\n - Lenient enforcement has weakened incentives to respect the rules and made it hard for EU institutions to credibly react to new violations.\n- Policy guidance by fiscal space:\n - Countries with limited fiscal space should prioritize debt sustainability.\n - Countries with ample fiscal space should use it to lift potential growth, taking advantage of low borrowing costs to invest in infrastructure, innovation and education.\n- If growth deteriorates sharply:\n - The escape clause in the fiscal framework could be activated to allow fiscal support, differentiated according to national fiscal space, financing conditions, and downturn severity.\n - Fiscal policy should become more expansionary through temporary, high-quality measures in countries with fiscal space.\n - Fiscal consolidation could be slowed temporarily in countries where fiscal space is at risk, provided financing conditions remain amenable and debt sustainability is not jeopardized." }, { "heading": "Structural Reforms", "content": "- Deeper productivity and competitiveness problems in some countries require decisive structural reforms; more demand will not fix these problems.\n- Product and labor market reforms are critical to closing productivity and competitiveness gaps and would most benefit countries with lower productivity levels.\n- Reforms would make economies more resilient, lessening the depth and duration of downturns.\n- The new Commission should reinvigorate the push to fully implement the EU Services Directive:\n - The single market for services lags far behind the single market for goods.\n - Better implementation has the potential to boost productivity and cross-border trade in services through country-specific recommendations and stepped-up enforcement.\n - The next EU budget provides an opportunity to provide more financial and technical support for reforms.\n- The EU has been proactive in safeguarding gains from international trade and the IMF welcomes the EU’s initiatives to reform the World Trade Organization." }, { "heading": "Financial Sector", "content": "- Strengthening the banking sector is critical to resilience:\n - Banks have boosted capital buffers and made progress on reducing nonperforming loans, but low bank profitability remains pervasive.\n - Supervisors should continue to assess banks’ business models, pushing for greater revenue diversification and cost efficiency, including through cross-border mergers and acquisitions.\n- Progress on 2018 FSAP recommendations:\n - The Single Supervisory Mechanism (SSM) is monitoring liquidity more closely and has begun using early intervention powers.\n - Reviews of bank supervision and resolution frameworks have been delayed until the next Commission, but the SSM has begun developing an action plan to reduce legal fragmentation in supervision.\n - The new Commission should use the reviews to reduce legal fragmentation and enhance supervisory and resolution toolkits as recommended by the FSAP.\n- Anti-money laundering (AML) needs centralization:\n - Recent money laundering cases highlight fragmentation.\n - The SSM’s new AML coordination function is welcome as a central point of contact and information exchange for systemic institutions.\n - Over the medium term, an EU-level AML body should be established, consistent with FSAP advice." }, { "heading": "Euro Area Architecture", "content": "- A truly borderless banking market requires more ambitious steps:\n - Agreement on the European Stability Mechanism providing a backstop to the Single Resolution Fund is welcome, but the final design must allow rapid deployment in a crisis.\n - Ring fencing of capital and liquidity at the national level impairs banking union development and reflects home–host tensions on burden-sharing when banks fail.\n - Addressing this will require creating a common deposit insurance scheme with due attention to risk reduction; the next Commission should seek to reenergize this effort.\n- The next Commission should push to develop the Capital Markets Union (CMU):\n - Capital markets in Europe remain fragmented, impeding cross-border private sector risk sharing.\n - Technical actions to advance the CMU include centralized reporting requirements for companies, minimum standards on insolvency regimes, and simplified procedures for reclaiming withholding taxes.\n- A euro area-level macroeconomic stabilization instrument is needed:\n - A central fiscal capacity could enhance resilience to shocks.\n - Agreement on such an instrument is likely to take time.\n - The proposed euro area Budget Instrument for Convergence and Competitiveness is an encouraging acknowledgment of the need for a euro area-level fiscal instrument, though details have not been determined.\n- Fiscal rule simplification:\n - A simplification would make rules easier to communicate, monitor and enforce.\n - IMF staff favor focusing on an expenditure growth rule anchored by a debt rule.\n - Revamping the fiscal rules will be difficult, but the next Commission should engage the issue.\n- Next EU budget considerations:\n - Brexit will result in the loss of the U.K.’s net contribution to the EU budget for 2021–27.\n - This could be tackled with a mix of new revenue sources and streamlining of some expenditures.\n - The next budget should be reoriented to address priorities such as climate change, innovation, migration, and security.\n- Strengthening architecture and addressing common challenges will require creative cooperation; governments should do more to reduce imbalances and increase economic resilience at the national level given imminent risks.\n\nSource: Euro Area—IMF Staff Concluding Statement of the 2019 Article IV Mission (June 13, 2019)\n\n---\n\n\n References\n\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/bundle-manifest.json)", "Published: June 13, 2019", "The euro area is at a challenging juncture. Growth is expected to firm-up later this year but there are significant risks to this outlook.", "Greater structural reform efforts at the national level would enhance the region’s resilience.", "In the event of a sharp downturn additional policy support will be needed.", "While there is some progress on euro area reforms, in many cases political consensus on the path forward is missing.", "The incoming European Parliament and European Commission should use the opportunity to forge a renewed consensus around strengthening the foundations of the monetary union.", "Growth has slowed and inflation continues to disappoint.", "Growth decelerated sharply in the second half of 2018 due to slowing external demand and mostly temporary domestic factors.", "Headline inflation has fluctuated with energy prices; core inflation has remained troublingly low despite declining unemployment and a gradual pickup in wage growth.", "Growth should firm up over the course of this year, premised on:", "Inflation is forecast to reach the ECB’s objective only gradually, reflecting subdued core inflation.", "Little progress has been made on reducing imbalances: the euro area current account surplus has narrowed slightly, but is still assessed by IMF staff to be moderately stronger than warranted by fundamentals, primarily driven by a few countries with sizable current account surpluses.", "Three serious risks could derail the upswing:", "These risks could materialize synchronously; even without a major shock, the euro area could experience a prolonged period of anemic growth and inflation.", "Persistent undershooting of the inflation objective calls for prolonged monetary accommodation, though this carries risks.", "The ECB’s stance is already accommodative; recent further extension of its forward guidance should support a sustained pickup in inflation.", "Risks of prolonged low rates:", "Fiscal rule compliance and enforcement need improvement now:", "Policy guidance by fiscal space:", "If growth deteriorates sharply:", "Deeper productivity and competitiveness problems in some countries require decisive structural reforms; more demand will not fix these problems.", "Product and labor market reforms are critical to closing productivity and competitiveness gaps and would most benefit countries with lower productivity levels.", "Reforms would make economies more resilient, lessening the depth and duration of downturns.", "The new Commission should reinvigorate the push to fully implement the EU Services Directive:", "The EU has been proactive in safeguarding gains from international trade and the IMF welcomes the EU’s initiatives to reform the World Trade Organization.", "Strengthening the banking sector is critical to resilience:", "Progress on 2018 FSAP recommendations:", "Anti-money laundering (AML) needs centralization:", "A truly borderless banking market requires more ambitious steps:", "The next Commission should push to develop the Capital Markets Union (CMU):", "A euro area-level macroeconomic stabilization instrument is needed:", "Fiscal rule simplification:", "Next EU budget considerations:", "Strengthening architecture and addressing common challenges will require creative cooperation; governments should do more to reduce imbalances and increase economic resilience at the national level given imminent risks.", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/index.md", "json": "/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2019/06/13/euro-area-imf-staff-concluding-statement-of-the-2019-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T22:51:27.919Z" }