Expected and actual impact of EMU on growth, public finances and structural reforms in the euro area

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No. 40

Expected and actual impact of EMU

on growth, public finances

and structural reforms in the euro area

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NBP Printshop

Published by:

National Bank of Poland

Department of Information and Public Relations 00-919 Warszawa, 11/21 Świętokrzyska Street phone: +48 22 653 23 35, fax +48 22 653 13 21

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Contents

Abstract

. . . .8

Introduction . . . .

9

1. EMU and the overall performance of the euro-area economy . . . . .11

1.1. Macroeconomic expectations vs. achievements related to EMU

. . . .

11

1.2. Growth performance in the euro area . . . 13

2. Public finances before and after the introduction of the euro

. . . . .20

2.1. Budgetary positions . . . 20

2.2. Public debt (government debt) . . . 30

2.3. Long-term sustainability of public finances . . . 35

. Structural reforms and market integration before and after

the introduction of the euro . . . .45

3.1. Integration and reforms of financial and product markets . . . 48

3.1.1. Financial markets . . . . 48

3.1.2. Product and service markets . . . . 52

3.2. Labour market reforms and performance . . . 62

3.2.1. Labour market performance in the EU . . . . 63

3.2.2. Intensity of labour market reforms in EMU . . . . 69

3.2.3. Labour market flexibility in the euro area . . . . 72

3.3. Structural reforms – a key challenge for the EU economy . . . 75

Concluding remarks

. . . .86

References . . . .89

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Tables, figures and boxes

Table 1.1. Recent economic forecasts for the euro area – as regards

non-inflationary growth . . . 14

Table 2.1.

General government deficit / surplus in the euro-area countries

(1994-2007) . . . 21

Table 2.2. General government budgetary positions in the euro area

(2001-2007) . . . 27

Table 2..

Budget balances in the euro-area countries (2003-2007) . . . 28

Table 2.4.

Government debt in the euro-area countries (1994-2007) . . . 32

Table 2.5.

Projected evolution of debt levels in the euro area up to 2050

(in % of GDP) . . . 41

Table 2.6.

The structural primary balance and the required primary balance

in the euro area . . . 41

Table 2.7.

Overall classification of the Member States’ risks to their public

finances sustainability . . . 42

Table .1.

Selected labour market indicators for the euro area

(in comparison with the EU, the US and Japan) . . . 64

Table .2.

Potential welfare effects of coordinated/uncoordinated

structural reforms and/or budgetary consolidation in the euro

area (GDP target) . . . 80

Figure 1.1.

Potential impact of the ageing of populations on growth

(2000-2050) . . . 18

Figure 2.1.

General government deficit / surplus in the euro area

(1994-2005) . . . 22

Figure 2.2.

Fiscal stance and cyclical conditions in the euro area and

in the EU (1992-2007) . . . 24

Figure 2..

Government debt in the euro area (1994-2005) . . . 32

Figure 2.4. Projected changes in the size and age structure of the EU-25

population . . . 36

Figure 2.5.

Potential public debt developments in the EU (projected up

to 2050) . . . 40

Figure 2.6. Long-term projections of public debt reduction in the most

indebted Member States of the euro area . . . 43

Figure .1. Trade effects of the introduction of the euro . . . 53

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Figure .2.

FDI flows in the euro-area Member States (1995-2003) . . . 56

Figure .. Indicators of product market regulation (1998 vs. 2003) . . . 59

Figure .4.

Progress towards the Lisbon and Stockholm employment targets . . 66

Figure .5.

Projected employment rates and Lisbon targets in the EU . . . 68

Figure .6.

Intensity and timing of labour market reforms in EU, EMU and OECD countries (1994-2004) . . . 70

Figure .7. Sum of tax rates on work (from early retirement age to 69) . . . 72

Figure .8.

Frequency of structural reforms before and after the Stage Two of EMU . . . 81

Figure .9.

Labour and product market policies in OECD countries . . . 84

Figure .10.

Older people as the majority of voters in selected countries . . . 85

Box .1.

Integration of financial markets in the EU: key measures . . . 51

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Abbreviations

Member States of the euro area (as of 2006):

BE Belgium DE Germany EL Greece ES Spain FR France IE Ireland IT Italy LU Luxembourg NL Netherlands AT Austria PT Portugal FI Finland

Member States not belonging to the euro area (as of 2006): - new Member States:

CZ Czech Republic EE Estonia CY Cyprus LV Latvia LT Lithuania HU Hungary MT Malta PL Poland SI Slovenia SK Slovakia - others: DK Denmark SE Sweden UK United Kingdom

Other countries or groups of countries (as of 2006): EU-25, EU European Union (consisting of 25 Member States)

EU-15 old Member States (15 Member States belonging to the EU before 1 May 2004) EU-12 euro area (consisting of 12 Member States)

EU-10 new Member States (10 Member States that joined the EU on 1 May 2004)

JP Japan

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Other abbreviations:

ALMP active labour market policy BEPGs Broad Economic Policy Guidelines CAB cyclically-adjusted balance CABB cyclically-adjusted budget balance CAPB cyclically-adjusted primary balance ECB European Central Bank

EDP excessive deficit procedure EGs Employment Guidelines EMI European Monetary Institute EMU Economic and Monetary Union EPC Economic Policy Committee EPL employment protection legislation ERM Exchange Rate Mechanism ESA European System of Accounts ESCB European System of Central Banks FSAP Financial Services Action Plan GDP gross domestic product GNI gross national income GNP gross national product

ICT information and communication technology IG Integrated Guidelines

IMF International Monetary Fund IT information technology

MTO medium-term (budgetary) objective NRP National Reform Programme OCA optimum currency area

OECD Organization for Economic Co-operation and Development PPS purchasing power standards

RCAP Risk Capital Action Plan R&D research and development SGP Stability and Growth Pact

SMEs small and medium-sized enterprises SMP Single Market Programme

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                                                                                                                                                                        

Abstract

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  



                                                                                                                                                                                                                                                     

Introduction

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                      ą 

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   

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                                                                                 •                                                                     _{}  _{                   }                                                       

1

(12)

1

                     •                                                                   •                                                                                

(13)

1

                                                                                                      _{    }                                                                                                                  _{               }                     

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                                                                                                                                                               _{}                                                                                     

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                                                             