Transcript Towards EU 2020

The excessive imbalances
procedure (EIP)
Declan COSTELLO & Aurora MORDONU
DG ECFIN
29 November 2011
European Commission
Outline
• A description of the EIP
• Monitoring housing market developments:
analyical approaches and future work
Part I
A description of surveillance under
the preventive and corrective
arms of the EIP
Overall changes to economic governance
Excessive
Imbalances
Procedure
external and internal
imbalances
European Systemic
Risk Board
financial stability and
macro & micro level
Stability and
Growth Pact
European semester
and the 2020
strategy
growth enhancing
structural reforms
fiscal policy
AND …. the ongoing debate on EFSF/ESM and
Eurogroup goverance
Internal
imbalances
External
imbalances
Broad scope of surveillance
• External positions (e.g. current accounts,
net international investment positions)
• Competitiveness developments (e.g.
REERs, ULCs)Export performance (e.g.
export market shares)
• Private sector indebtedness (e.g. credit,
debt)
• Assets markets (e.g. housing)
The preventive arm of the EIP
Policy response
No problem
Procedure stops.
Alert
mechanism
In-depth review
Economic reading
of early warning
scoreboard
indicators to
identify Member
States with
potential risks
Analysis to distinguish between
benign and harmful macroeconomic
developments and to identify policy
options
Imbalance exists
Commission/Council
recommendations
under Article 121.2
Severe imbalance
Commission/Council
recommendation
under Article 121.4
The Corrective Arm
Sufficient
Member
State is
placed in
“Excessive
Imbalance
Position”
abeyance
Corrective
Action
Plan
Surveillance of
compliance with
reform commitments
Insufficient Insufficient:
fine 0.1% of
GDP
interest
bearing
deposit
Insufficient:
Fine
0.1% of GDP
The Corrective Arm is INTRUSIVE and
FOCUSSED
Sufficient
Member
State is
placed in
an
Excessive
Imbalance
Position
abeyance
Corrective
Action
Plan
Surveillance of
compliance with
reform commitments
Fine 0.1% Insufficient:
of GDP
interest
bearing
deposit
Insufficient:
Fine
0.1% of GDP
… and works by reverse Qualified Majority
Voting
Sufficient
Member
State is
placed in
an
Excessive
Imbalance
Position
abeyance
Corrective
Action
Plan
Surveillance of
compliance with
reform commitments
Fine 0.1% Insufficient:
of GDP
interest
bearing
deposit
Insufficient:
Fine
0.1% of GDP
Challenges in applying the EIP
• Analytical
–
–
–
–
large degree of qualitative judgement especially if acting early
requires considerable country specific knowledge;
data limitations
limited consensus on policy responses.
• Political
– Positive : greater awareness of the costs of inaction and spillover
effects, and not easy to form blocking minorities;
– Challenge: macro challenges with euro area spillovers that
require micro policy responses in areas of national competence
– … hinge on effectiveness of overall governance package and
ongoing discussion to overhaul the Eurogroup
Next steps
• Finalising the scoreboard design. ECOFIN
supported the envisaged design on 7 November
2011, and comments expected from the
European Parliament and ESRB by mid
December
• Commission will present its Alert Mechanism
Report (expected either 20 December or 4
January) for discussion in ECOFIN-Eurogroup in
January
Part II
Monitoring housing market
developments
The choice of indicators: main
considerations
• Limited SET of indicators that capture external
and internal imbalances at an early stage, and
take account of stocks and flows
• Timely availability
Member States
and
broad
coverage
of
• Aim to respect the principles of the European
Statistics Code of Practice of the European
Statistical System (ESS)
Public policy intervention in housing markets
• The angle of surveillance under the EIP:
potential house price bubbles, due to concerns linked to:
o Wealth and collateral effects (Consumption)
o Reallocation
of
resources
towards
the
construction
sector
(Investment, employment)
o Bank balance sheets, impact on macro-economic stability
• Broad scope:
general access to affordable housing,
labour mobility, spatial developments, energy efficiency
• Equity and efficiency policy goals (study)
Sustainability of macro-trends
• Early warning
• Deviation from equilibrium (competitiveness, credit
growth, housing prices)
Identification
of
problematic
• Other factors (GDP growth, demography, catching-up,
global imbalances, saving and investment imbalances,
housing and other asset markets, shocks)
• Policy determinants (fiscal policy, financial regulation,
labour market institutions)
imbalances
Adjustment capacity
• Price and wage flexibility
• Labour market flexibility
• Financial market intermediation
EIP
• Balance sheet adjustment
Spillovers
• Trade linkages
• Financial linkages
Policy options
Policy
Response
• Wage bargaining system
• Financial market regulation
• Fiscal policy
• Growth and structural reforms
Policies affecting housing markets
Hinging on a broad set of policies:
• Monetary policy
• Macro-prudential policies (Loan to Value Ratio, forex
borrowing)
• Taxation policy (mortgage interest rate deductibility)
• Regulatory issues affecting supply (building permits)
Types of tools/frameworks needed to conduct
surveillance on macroeconomic imbalances
•
development of analytical frameworks conceptual indicators, e.g.
equilibrium house prices, affordability measures, asset-pricing models
•
statistical datasets, e.g. the EIP database
•
analytical frameworks useful for identifying policy responses to
imbalances
•
information sets on institutional settings at Member State level
LIME workshop on housing – 8-9 December
1. Stock taking: Methodologies and tools
 Methodological approaches to assess equilibrium
house prices
 The house price cycle and the real economy
2. Policies and structural features
 Structural features and policies of housing markets
 Demand and Supply-side policies interaction
3.Case studies involving experts from the
Member States and country desks: SE, IE, ES
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Thank you for your attention!
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