EU Economy Brief 48/2017

Numbers of the Week

  • Euro-area unemployment decreased to 8.8% in October 2017, down from 8.9% in the previous month and from 9.8% in October 2016. Unemployment in the EU fell to 7.4% in October 2017 from 7.5% in September 2017 and 8.3% in October 2016. (Eurostat)
  • Annual inflation in the euro area increased to 1.5% in November 2017, up by 0.1 percentage points relative to the month prior. Core inflation, excluding energy and food, is to remain unchanged at 1.1% compared to October 2017, contrary to last month’s expectations of a rebound. The uptick in overall inflation is mostly driven by higher energy prices. (Eurostat)
  • Bank of England stress tests show 5 out of 7 biggest UK banks able to withstand hard Brexit. Barclays and RBS failed to reach a higher threshold reflecting their global reach, yet both would meet the threshold if the test were run using their latest capital positions. The BoE did raise the countercyclical buffer, capital banks have to put aside to enhance crisis resilience, from 0.5% to 1% of risk-weighted assets. (Bank of England)
  • German residential real estate prices in 127 cities estimated to be 15-30% higher in 2016 than fundamentals would warrant, compared with a price excess of 10-20% in 2015. Nevertheless, the Bundesbank assesses financial stability risks posed by housing loans as low. (Bundesbank)

Chart of the Week­

More work required for many euro-area countries to meet medium-term budgetary objectives

  • The European Commission judged six euro-area countries to be at risk of non-compliance with the Stability and Growth Pact (SGP): France, Belgium, Italy, Austria, Portugal, and Slovenia. The assessment, part of the European Semester, is based upon the extent to which countries deviate from the adjustment path towards their medium-term objectives (MTO), with changes in nominal budget balances being an important indicator.
  • Structural budget balances are cyclically-adjusted nominal balances that exclude one-off and temporary measures. MTOs, set per country as a part of the preventive arm of the SGP, are defined such as to ensure compliance with the SGP, safeguard fiscal sustainability, and maximise intertemporal fiscal space.
  • France, already in an Excessive Deficit Procedure (EDP), risks coming closer to financial penalties. In contrast, Spain, likewise in an EDP, was found to be broadly compliant with the SGP, in view of the downward trend in its nominal budget balance.
  • The European Semester, introduced in 2010, is the EU’s main tool for economic policy coordination. Each year, the Commission carries out a detailed analysis of each country’s plans concerning budget, macroeconomic and structural reforms and issues country-specific recommendations. The budgets of euro-area countries are evaluated in more depth to monitor compliance with fiscal rules.

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