1. The resilient recovery of the euro area economy stands in marked contrast with the authorities’ struggle to come to grips with the sovereign crisis affecting some member states and casting a shadow over the EMU project. The recovery in the core economies has become broad based and less dependent on public support, while inflation has risen, but several member states remain in dire shape. More than a year after Greece called upon international financial support, the Greek sovereign debt crisis is again dominating headlines and the choices made in its resolution will shape the future of the euro area. There is much agreement about what went wrong, but no consistent roadmap ahead, leaving both orderly and disorderly outcomes on the table, with possible significant regional and global spillovers. Moreover, despite genuine efforts to strengthen governance and cooperation at the center, the reaction by national authorities and economic agents has been one of retrenchment, threatening to turn back the clock on economic and financial integration, the very foundation of EMU. These developments could easily jeopardize the recovery and cloud the medium-term growth outlook.
2. Against this background, the discussions focused on the following key issues: (a) the strength of the recovery and its consequences for macroeconomic policies and the periphery; (b) the risks associated with the sovereign crisis affecting some member states and its resolution; (c) the capacity of the financial system to deal with illiquid private assets, sovereign tensions, and changes in the regulatory environment; and (d) the requirements for a resilient and stable EMU. Clearly, all these issues are interconnected: resolving the sovereign tensions in a way that fosters economic and financial integration will underpin confidence in EMU and help the financial system; fixing the financial system will in turn make handling the sovereign crisis easier; and strengthening EMU’s governance will provide confidence to investors that future difficulties can be safely handled.
Appendix I. Statistical Issues1
Statistics for the euro area (and the EU-27) are produced by Eurostat and the ECB in collaboration with National Statistical Institutes (NSIs) and National Central Banks (NCBs). These statistics are generally of sufficient quality, scope, and timeliness to allow effective macroeconomic surveillance, thanks to major progress made since the start of EMU. However, the financial crisis and the situation in some member states have generated a number of challenges for official statistics. This appendix summarizes recent ongoing developments and desirable improvements clustered under thematic areas.
Information Gaps Initiative (IGI): As members of the Inter-Agency Group (IAG)2, Eurostat and the ECB are collaborating with the IMF to take forward the 20 recommendations endorsed by the G-20 in 2009 to address key information gaps in economic and financial statistics.
Noteworthy are Eurostat’s efforts to support the conceptual work on measuring cross-border exposures on corporate groups on a consolidated national basis, including by the development of a Euro Groups Register (EGR). Equally promising are ongoing PEEI-related initiatives (developed in collaboration with the UN and the IMF) to form an integrated view of business, growth and acceleration cycles; refine turning point techniques; and to construct a composite indicator for early warning purposes at the euro area level.
The ECB was generally content with the progress made under the IGI and the leadership provided by the IMF in this regard. While it saw the collection and distribution of macroeconomic data on a good track, challenges remain with regard to macroprudential data. These include data sharing and confidentiality issues as well completing the legal groundwork for non-bank institutions. Complementing existing initiatives, the ECB is working on a securities holding database for the euro area that is planned to be completed within 2-3 years
Public finance statistics-actions to tackle statistical issues in program countries: Fiscal and other public sector reporting are being improved in Greece, Ireland and Portugal, in line with requirements established in EC/ECB/IMF-supported adjustment programs. Measures taken in 2011 by the Greek government to prevent the recurrence of data under- and misreporting include a Memoranda of Understanding of ELSTAT with 9 ministries and entities aiming to improve the compilation of ESA95 general government fiscal statistics; collection of data on arrears covering both current and investment expenditure across all central government units (including, line ministries, social security funds, public hospitals, extra budgetary funds, and the largest local governments) and the monthly publication of a consolidated report for the general government. To help ensure timely reports, the incentives of agencies and ministries have been adapted by introducing automatic sanction for delays in reporting. The newly compiled statistics by the Central Bank of Ireland include positions vis-à-vis nonresidents with breakdown by type of financial instruments, maturity, and currency; and separate datasets for banks servicing the domestic market and those focusing on the nonresident market. This data show that foreign exposure to the Irish banking system has fallen sharply. In Portugal, the SOEs, PPPs, and social security decisions with fiscal implications will be integrated within the budget process; and fiscal arrears will be monitored more closely.
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Public finance data-Directive on National Fiscal Framework (NFFs)s: The draft directive on NFFs aims to align fiscal behavior with SGP commitments. To facilitate fiscal and liquidity control, countries will be required to publish cash based fiscal data at a monthly frequency, (before the end of the following month) for all government levels except local entities; and explain the methodology used for the reconciliation of cash and ESA-based data. However, Eurostat has plans neither collect nor to disseminate cash-level data. Fiscal transparency will be enhanced by expanding the perimeter of government to include all extra-budgetary funds and bodies, and also by the disclosure on data on contingent liabilities. More broadly, Member states have been asked to report to the ECOFIN on the estimated fiscal impact of the revised ESA by autumn 2011. Going forward, it will be essential that member states take all necessary measures to facilitate Eurostat’s verification of public financial data.
Public finance statistics-Stock-Flow Adjustment (SFA): Factors contributing to changes in government debt other than government deficits are regularly monitored by Eurostat. SFAs have been consistently positive in recent years for the euro area aggregate, peaking at 3.2 percent of GDP in 2008 (and situating at 0.9 and 1.9 percent respectively in 2009 and 2010). Concerns that governments may resort to SFA transactions to ensure deficit compliance with EDP requirements justify the proposal for incorporating SFAs analysis in the revamped SGP.
Public finances—Statistical consequences of the EFSF: In cooperation with the Central Bank of Luxembourg and STATEC, Eurostat is defining the content and structure of the template that will be used to estimate the impact of the EFSF on GFS and BoP payments statistics in euro area countries. Figures will be reported on a monthly basis, with the first release being scheduled for July 2011.
Pensions systems: To improve the comparability of pension schemes the 2008-SNA requires the comprehensive recording of all pension entitlements accrued by households regardless of the type of social security arrangement. Pension tables are already elaborated on a voluntary basis by eight euro area members. In the absence of SNA specific guidelines, Eurostat is holding regular seminars with the ECB, NCBs and NSIs to give methodological guidance to NSIs, and providing TA where needed. A fully-fledged release of data is only targeted by 2014 with the new ESA 2010 transmission program.
Short-term business statistics (STS): Work in collaboration with NSIs proceeds to improve STS indicators and PEEIs along various dimensions, including the implementation of the ESS guidelines for seasonal adjustment and ensuring consistency between the euro area GDP and the Industrial Production Index (IPI), as well as consistency of the latter with individual countries’ IPIs. Timeliness of STS statistics improved in the last years, in particular for PEEIs-related STS. Nevertheless some indicators still lag US dissemination speed.
Price statistics: Key priorities in this area include
HICP improvements: The new rules3 on the treatment of seasonal products took effect with the index of January 2011 requiring some NSIs to change their calculation methods in order to comply with the new standards. Implementation acts will follow in member states until November 2011, with Eurostat closely following on the impact of the implementation. Early indications suggest a moderate positive impact on euro area headline inflation (+ 0.1 percentage points on average for the EU during the first [two] quarters), with a relatively higher impact in Southern countries, mostly driven by the food and clothing sub-components. New minimum standards for the quality of HICP weighting4 will require additional efforts from NSIs during 2011 to ensure implementation by January 2012. Eurostat is also pursuing changes in the production of monthly euro area inflation flash estimates, with a possible breakdown to four main components (processed food, unprocessed food, non-energy industrial goods, and services).
House Price Indexes (HPI) and Owner-Occupied Housing (OOH): Eurostat is leading work to improve real estate price information in the context of IGI Recommendation #19, with OOH remaining a high priority methodological development for the HICP. Pilot projects geared by the NSIs and coordinated by Eurostat have lead to the release of the first experimental data. Eurostat is preparing a legal act to insure the continuation of the project beyond its pilot phase. Eurostat is considering the possibility of including the quarterly House Price Indices in the list of PEEIs.
Handbook of Residential Property Price Index (RPPI): Lack of homogeneity of methodologies in the compilation of RPPIs makes this a highly problematic area and the release of the Handbook should, at least in principle, help promote good and more consistent practice. Preliminary work and plans are for a companion Handbook for Commercial Property Price Indices.
Structural Business Statistics (SBS): SBS are being improved along the lines of the Program for the Modernization of European Enterprise and Trade Statistics (MEETS)5 launched in 2008. Actions this year focus on constructing data warehouses and developing further tools for micro data linking; back casting data (e.g. in business demography statistics); and improving the collection of data on access to financing by SMEs. The creation of a register for MNEs operating in the European market (the Euro Groups Register, or EGR) has been partly outsourced to private providers. The EGR is seen as a promising tool for compilation of a number of statistics affected by globalization (e.g. FDI, trade, and knowledge), currently suffering from fragmentation and inconsistency problems.
Balance of Payments and International Trade Statistics (ITS): Users are generally satisfied with ITS data (Quality Report, 2010). Ongoing work aims to improve statistics on SEMs involved in international trade, for instance by using VAT data to measure trade not covered by Intrastat reporting. Data for 2008 and 2009 will be disseminated in the coming months. On asymmetries, a longstanding concern of Eurostat, the outcome of reconciliation exercises carried out during 2011, has been largely positive. The FDI network has proved a useful platform to share confidential data on large FDI transactions, helping identify asymmetries and improve quality data in this area.
Staff research found that a significant share of a sovereign’s increased funding costs are passed on to its banks and nonfinancial corporates, see Selected Issues Paper, Chapter 1.
See Spillover Report for the Euro Area.
See Staff Report for Germany 2011 Article IV Consultation.
See Selected Issues Paper, Chapter 2.
See Spillover Report for the Euro Area.
For detailed analysis, please consult the accompanying background paper, entitled “Lessons from the European Financial Stability Framework Exercise” (EFFE).
For a discussion of the interplay between national and supranational macroprudential policy frameworks, see Selected Issues Paper, Chapter 3.
See Selected Issues Paper, Chapter 3.
See Selected Issues Paper, Chapter 4 which discusses these issues in more detail.
For a discussion of the main growth drivers and constraints, please consult the Selected Issues Paper, Chapter 5.
Participants in the discussions comprised Helge Berger, Esther Perez and Nico Valckx (all EUR), Mauricio Soto (FAD), and Miguel Alves, Claudia Dziobek, Manik Shrestha, Mick Silver, and Mark van Wersch, (all STA). Mark van Wersch acted as STA coordinator.
The IAG was established to coordinate improvements of economic and financial statistics after the crisis. Members of the IAG are the IMF (chair), the BIS, Eurostat, the ECB, the OECD, the UNSC and the World Bank.
Regulation EC No 330/2009.
Regulation EC No 1114/2010.
Decision EC No 1297/2008.