economic governance? European Economic and Social Committee - - PowerPoint PPT Presentation

Euro Area: Which reforms for better economic governance?

European Economic and Social Committee January 26, 2016 By Jeffrey Franks Director, IMF Europe Office in Paris and Brussels

A modest cyclical recovery

Domestic demand is strengthening ... … but investment remains weak.

80 85 90 95 100 105 110

Real Investment (2008 = 100)

US Euro area Japan 85 90 95 100 105 110

Real GDP (2008=100)

Euro area France Germany Italy Spain

Medium- and long-term shortcomings

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 1997 2002 2007 2012 2017 Potential GDP Growth

(percent change)

Euro area US

70 75 80 85 90 95 100 105 110 115 120 2007 2009 2011 2013 Service Sector Productivity: US, EA, and EA range

(2007 = 100)

US EA 11 (excl IRL and LUX)

Demand support Clean-up balance sheets Stronger economic governance framework Structural reforms

Comprehensive strategy

Underlying challenges

Inadequate demand Low productivity Governance challenges Impaired balance sheets

• QE
• SGP flexibility
• EFSI
• Public investment

where possible

Demand support

Clean-up balance sheets Stronger economic governance framework Structural reforms

High non-performing loans

20 40 60 80 100 2 4 6 8 10 12 14 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2000 2001 2002 2003 2004 Percent of Gross NPLs Percent of GDP Non-Performing Loans, Provisions, and Write-offs

Net NPL Provision Provision ratio (rhs) Write-off ratio (rhs)

United States Euro area Japan

• Prudential oversight
• Insolvency reforms
• Distressed debt market

Demand support

Clean-up balance sheets

Stronger economic governance framework Structural reforms

Closing Structural Reform Gaps to address low productivity

National level

Labor market reforms: reduce rigidities and duality Product market reforms: insolvency frameworks, efficiency, access to credit (esp. SMEs)

Regional level

Service Directive implementation; Completing the Single Market Capital Markets Union: High quality securitization

The case for stronger economic governance

• Stronger structural reform governance

– “Outcome-based” reform benchmarks – More effective use of EU legislation – Incentivizing reforms

• Simplified fiscal framework

– Single anchor: public debt to GDP – Single target: expenditure growth rule

Euro area representation at the IMF

Before 2010 reforms After 2010 reforms

Number of EDs from advanced Europe

• 2

Euro area countries’ percent of quota 23.33 21.22

Before SDR review After SDR review

Euro weight in SDR 37.40 30.93

Thank you!