Remarks by M. Centeno following the Eurogroup meeting of 11 March 2019


Good evening. We had an interesting meeting today, lots of different topics on a long agenda.

We kicked off with a thematic discussion on housing markets in the euro area. This is not a usual topic for the Eurogroup, but we looked at it from a macroeconomic perspective. For that we invited the distinguished Professor Lars Svensson, well known for his work on macroeconomics and monetary policy. He spoke to us about the assessment of risks to financial and macroeconomic stability that emerge from household debt.

The Commission’s analysis shows that the present situation in housing markets in the euro area is quite different than before the crisis. There are no major signs of overvaluation, according to the Commission. At the same time, given the lessons of the recent crisis we cannot be careful enough, we need to monitor house prices and household debt very closely.

We have been making progress in the euro area to ensure housing markets function better and to make our economies more resilient, notably through macro-prudential policies. But there is still room to improve and we can learn from sharing national experiences, which we did today.

Let me add that I’m happy that we now have these open discussions on horizontal topics in the Eurogroup from time to time. This broadens the scope of our exchanges with valuable input from external experts. And judging by the lively discussion, this view is shared by ministers.

You may recall that last month we welcomed the new Finance Minister of Latvia, Jānis Reirs. Today, we reviewed his updated draft budget and agreed with the Commission’s Opinion that it is broadly compliant with the requirements of the Stability and Growth Pact.

We also discussed Greece. It’s been a while since we talked about Greece. A lot of water has passed under the bridge. For instance, Greece has recently issued a long term bond, 10 year maturity. This is a milestone in the country’s return to normal market functioning and it reinforces Greece’s fiscal buffer. Also, the budget for 2019 was adopted projecting that the primary surplus target of 3.5% of GDP will again be achieved. It will be the fourth year in a row that Greece will deliver on this target. This shows that the government’s commitment with sound public finances outlives the programme.

Today we focused on the second enhanced surveillance report presented to us by the Commission, who then briefed us on reform implementation since the publication of the report on 27 February.

Overall, there has been very good progress. For instance, on measures to strengthen and better control spending in the health system, the initiative to modernise investment licensing and on important privatisation transactions.

At the same time, there are still a couple of points where details need to be fleshed out. The main outstanding issue is a potential new scheme for the protection of primary residences.

We invite the upcoming EWG to examine whether this important scheme has been agreed with the institutions. If all reform commitments are met, the Eurogroup will in April consider the implementation of further debt relief measures envisaged in our June 2018 meeting.

Finally we took stock of the economic situation in the euro area, which shows a temporary slowdown – that is less good news. The ECB presented to us its latest staff projections. It is clear that the euro area economic expansion has slowed its pace, but there are some green shoots out there. Wages and employment are still going up, investment growth is now close to pre-crisis levels, and the latest figures show services sector are rebounding. Macroeconomic policies are also supporting economic activity. The risks we face are well known, but the underlying fundamentals of the euro area are strong. Importantly, the ECB and the Commission both forecast growth will pick up next year, which is why we still see this slowdown as temporary.

Our last point was also the longest. We picked up on our ongoing discussions on the key features of the budgetary instrument for convergence and competitiveness that was agreed by Leaders in December. Today we focused on the expenditure-related aspects.

There is broad agreement that this tool should support both structural reforms and public investment, in line with priorities and challenges identified in the European Semester. Many of us favour an integrated approach, which would allow packages of investment programs and reform measures backed by financial support, to be proposed by members. Overall, the preferred form of delivery is via grants but there is also some support for loans.

This tool needs to encourage ownership. It must promote an efficient allocation of resources, good quality investment projects and efficient reforms.

There is some support to establish as requirement that Member States co-finance a portion of the investment and reform package at the national level. There is also support to explore the possibility of reducing member states co-financing rates in case of severe downturns.

More technical work is needed to agree all these details. We will come back to this issue in our future discussions.

In April we will focus on governance aspects. Our aim is to agree on the key features of this new instrument and report back to Leaders in June.

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