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1. INESE ALLIKA
Chief Economist, International Relations and Communication Department, Bank of Latvia
"WINDS OF CHANGE IN EUROPE"
26.02.2019.
2. 2
EU TOOLBOX FOR ECONOMIC POLICY
AND CRISIS MANAGEMENT
1. Is Europe in a good shape and ready to face the
challenges ahead?
2. What are the existing economic policy and crisis
management instruments/tools at the EU level?
3. Do we need more, less,…. Europe/EU?
4. Topical EU AGENDA issues/events in 2019, incl. BREXIT
4. ACHIEVEMENTS, OPPORTUNITIES, CHALLENGES
4
• Europe is home to the world’s largest single market and second most
used currency. It is the largest trade power and development and
humanitarian aid donor.
However Europe faces:
• Legacy of the economic crisis
• Ageing population
• Migration, security threats
• Globalisation, digitalization…
• Political uncertainties, populism
11. 11
Uncertainty and downside risks
• Further escalation in trade tensions
• Sharper slowdown in China
• Re-assessment of financial markets risks
• Uncertainty in some Member States, including Brexit
Source: European Economic Forecast, European Commission, 02/2019
12. EURO AREA LOST GROWTH MOMENTUM
12
Investment weakened
Exports continued to underperform
Private consumption lost some
momentum
Source: European Economic Forecast, European Commission, 02/2019
14. UNEMPLOYMENT HAS DECREASED BUT STILL VERY HIGH IN SOME
COUNTRIES AND AMONG YOUNG PERSONS
14
In January 2019, in the EU-28: The youth unemployment rate was 14.9 % with the lowest rate in DE (6.0 %), CZ (6.1 %)
NL (6.5 %), while the highest rate in EL (39.1 % in November 2018), IT (33.0 %) and ESP (32.6 %)
Source: Eurostat (2019)
20. AUTOMATION/DIGITALISATION
20
• Fears of massive technological unemployment are widespread- across 19 OECD
countries surveyed in 2018, over 40% of employed respondents identified losing their
job or self-employment income as one of the top 3 risks facing them or their families
over the coming 2 years (OECD , 2018[1])
• But the evidence suggests that large-scale net job losses have not materialised.
• Technology has been also a significant source of jobs with four out of ten jobs created in
the past decade being in digitally-intensive sectors.
• Future challenge will likely not be an absence of jobs, but ensuring that the jobs created
are of sufficient quality, that education systems can keep up with technological change
and that digitalisation does not lead to increased inequality. Furthermore, job
displacement will likely be concentrated in particular occupations and territories.
25. 25
ECONOMIC POLICY AND CRISIS MANAGEMENT
INSTRUMENTS AT THE EU LEVEL
25
• European Semester: fiscal surveilance, macroeconomic
oversight and economic policy coordination
• EU financial assistance instruments
• Banking Union
• Junker plan & European Fund for Strategic Investments (EFSI)
27. ECONOMIC POLICY AND CRISIS MANAGEMENT
INSTRUMENTS AT THE EU LEVEL
27
• European Semester: fiscal surveilance, macroeconomic
oversight and economic policy coordination
• EU financial assistance instruments
• Banking Union
• Junker plan & European Fund for Strategic Investments (EFSI)
28. EU FINANCIAL ASSISTANCE INSTRUMENTS
28
• Balance of payments (BoP) assistance - assistance to EU countries outside the euro area that are
experiencing or threatened by difficulties regarding their balance of payments. BoP assistance takes the
form of medium-term loans that are conditional on the implementation of policies designed to address
underlying economic problems. BoP has provided financial assistance to Latvia, Hungary, Romania.
• European Financial Stabilisation Mechanism (EFSM) up to €60 billion – programme reliant upon funds
raised on the financial markets and guaranteed by the EU budget as collateral, operational since May 2010.
It was used to provide financial assistance conditional on the implementation of reforms to Ireland and
Portugal between 2011 and 2014, and to provide short-term bridge loans to Greece in July 2015.
• European Financial Stability Facility (EFSF) up to €440 billion - temporary crisis resolution mechanism
created in June 2010. It has provided financial assistance to Ireland, Portugal and Greece which was
financed through the issuance of EFSF bonds and other debt instruments on capital markets. The EFSF does
not provide any further financial assistance, as this task is now performed solely by the European Stability
Mechanism (ESM).
31. 1st PILLAR: SINGLE SUPERVISORY MECHANISM (SSM)
31
• SSM operates as a system of common bank supervision in the
EU that involves national supervisors and the European
Central Bank. It became operational on 4 November 2014.
• 19 euro area member states participate automatically in the
SSM.
• ECB is directly supervising "significant banks", representing
almost 82% of total banking assets in the euro area.
• "Less significant" banks in the euro area (~3,500) are directly
monitored by their national authorities, though ECB has the
authority to take over direct supervision of any bank to
ensure consistent application of high supervisory standards.
35. 1. Carrying On: The EU27 focuses on delivering its positive reform agenda
2. Nothing but the Single Market: The EU27 is gradually re-centred on the single
market
3. Those Who Want More Do More: The EU27 allows willing Member States to do
more together in specific areas
4. Doing Less More Efficiently: The EU27 focuses on delivering more and faster in
selected policy areas, while doing less elsewhere
5. Doing Much More Together: Member States decide to do much more together
across all policy areas
FUTURE OF EUROPE: SCENARIOS
proposed by European Commission, 2017
36. IDEAL FUTURE FOR EU: PUBLIC OPINION
36Source: Eurobarometer 479, European Commission, 10-11/2018
%EU
38. 4. TOPICAL EU AGENDA ISSUES/EVENTS IN 2019
38
• Future of Europe (Leaders' Agenda, summit in Sibiu,
Romania, 9 May 2019)
• EU budget post 2020
• Eurozone reforms
• BREXIT,……
• European Parliament elections (23-26 May 2019)
• New European Council president; ECB president
European Commission (2nd half of 2019)
39. 39
EU BUDGET 2021-2027 (in billion euro, current prices)
Research and
innovation
spending increased
Cohesion Policy
spending reduced
Common
Agriculture Policy
spending reduced
Source: European Commission Communication (May 2018)
Security and
defence spending
increased
Migration and
border
management
spending increased
42. 42
BREXIT NEGOTIATIONS: contentious topics
• EU-UK future cooperation/trade relations
after the end of transition period
• Border between Northern Ireland (UK) and
the Republic of Ireland – agreement on so
called "backstop" or safety net intended to
ensure that there will not be a hard border
on the Island of Ireland, even if no formal
deal can be reached on future EU-UK
relations
45. 45
EU-UK FUTURE TRADE RELATIONS: EXISTING MODELS
UK RED LINES/INTERESTS
Source: UK, Institute for Government analysis
46. 46
Only certain countries are
expected to endure severe
Brexit losses in a WTO
scenario
(percentage point of GDP/welfare
deviation from an EU-like scenario,
classification in terms of
median losses)
47. 47
BORDER between Northern Ireland and the Republic of Ireland
• Extends over 500 kilometres (comparable in
length to the border between France and Spain)
• 208 official crossing points and many unofficial
ones
• 2.3 million people live around the border, three
quarter of these are located in Northern Ireland
(overall population on the island of Ireland is only
6.5 million people).
• 23,000 people cross it every day for work or study
• Risks related to the Northern Ireland peace
process (Good Friday Agreement of 1998)