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IMF Country Report No. 18/223
EURO AREA POLICIES
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR MEMBER COUNTRIES
July 2018
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with member countries forming the euro area, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its July 16, 2018 consideration of the staff report that concluded the Article IV consultation with member countries.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on July 16, 2018, following discussions that ended on May 24, 2018, with the officials at EU institutions on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 27, 2018.
A Statement by the Executive Director for Germany, on behalf of the euro area Member States and the European community.
The documents listed below have been or will be separately released.
Selected Issues
Financial System Stability Assessment
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2018 International Monetary Fund
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EURO AREA POLICIES
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION WITH MEMBER COUNTRIES
June 27, 2018
KEY ISSUES
This is a time to strengthen the resilience of the euro area and raise its long-term growth potential. Despite the recent slowdown and coming end of quantitative easing, growth remains strong and monetary conditions accommodative. Member countries should grasp the opportunity to address deep structural challenges, rebuild thin policy buffers, and rebalance externally. Mounting downside risks add urgency.
The supportive monetary stance should be maintained until inflation is convincingly converging to objective. As net asset purchases draw to a close, clear forward guidance will become even more important.
Public Debt and Current Accounts, 2017
Citation: IMF Staff Country Reports 2018, 223; 10.5089/9781484368954.002.A000
Source: World Economic Outlook (WEO).1/ Refers to countries with external positions that are substantially stronger than implied by medium-term fundamentals and desired policy settings, based on IMF External Balance Assessments.Much is needed at the national level. In the high-debt countries, public debt loads have barely fallen despite strong growth, leaving insufficient fiscal space to respond to the next shock, while productivity gaps remain wide, retarding per capita income convergence. In the large net external creditor countries, current account surpluses are excessive. Actions must include: (i) adjusting to rebuild fiscal buffers in the high-debt countries, while pursuing structural reforms to lift productivity; (ii) using fiscal space to increase spending in well-targeted ways in the large creditor countries to lift potential growth and incentivize private investment at home, while also taking steps to encourage faster wage growth; and (iii) maintaining risk reduction momentum in banking and finance everywhere.
Risk reduction and risk sharing should advance together. Architectural reforms would help increase the euro area’s resilience to future shocks. Completing the banking union, with common rules and backstops, and advancing the capital markets union, with careful management of the Brexit transition, would support private cross border risk diversification. Equally, there is a pressing need for fiscal institutional reforms: a central fiscal capacity to support macroeconomic stabilization, embedding strong safeguards against permanent transfers and moral hazard.
Approved By
Poul M. Thomsen (EUR) and Hugh Bredenkamp (SPR)
M. Pradhan (head), S. Aiyar, B. Barkbu, A. Bhatia, S. Mitra, A. Weber, N. Arnold, L. Lin, H. Qu, A.C. Paret (all EUR), and E. Ture (FAD); joined by D. Hardy (MCM), J. Franks, and C. Ebeke (both EUO); and observed by S. Meyer and B. Párkányi (both EURIMF)
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CONJUNCTURE
A. Recent Developments
B. Baseline Outlook
C. Risks Around the Baseline
MONETARY POLICY
RISK REDUCTION
A. Fiscal Policies
B. Structural Policies
C. External Sector Policies
D. Financial Sector Policies
ARCHITECTURE
A. Banking Union
B. Capital Markets Union
C. Fiscal Institutional Reforms
STAFF APPRAISAL
BOXES
1. Macroeconomic Impacts of Brexit
2. Understanding Euro Area Inflation Dynamics
3. European Commission Proposals on Corporate Income Taxation
4. Capitalizing on Knowledge-Based Capital
5. Recent Policy Proposals on NPLs
6. Specific Steps Toward Capital Markets Union
7. Preparing the Financial Sector for Brexit
8. Some Background on Euro Clearing and Brexit
9. A Central Fiscal Capacity for Macroeconomic Stabilization
TABLES
1. Main Economic Indicators, 2015–23
2. External Sector Assessment
3. Risk Assessment Matrix
4. Structural Reform Plans and Progress in Selected Euro Area Countries
ANNEXES
I. Progress Against IMF Recommendations
II. Statistical Issues
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Press Release No. 18/298
FOR IMMEDIATE RELEASE
July 19, 2018
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