Macro-economic report. Annual growth survey 2012 annex II.

Abstract

EU economic growth is faltering. In the euro area, this is exacerbated by the sovereign debt crisis and fragilities in the banking sector. These have created a dangerous feedback loop. The lack of confidence of the financial market has created volatility and undermined confidence in wider markets therefore weighing heavily on future economic prospects. After several years of crisis, there is very little further room for macroeconomic policies to boost growth. In particular, fiscal policy has been constrained in many countries by the high costs - or even the loss - of access to market financing. In this context, measures to strengthen growth have become central. Growth-friendly fiscal consolidation is necessary in view of market pressure and policy challenges related to ageing. Robust banking sector and stronger financial backstops for the sovereigns are key to contain financial turbulence and hence for growth to resume. Structural reforms are critically important to enhance the EU economy's overall efficiency and speed up its capacity to adjust. In a positive feedback loop an improved growth outlook will support other objectives by enhancing confidence and boosting employment, contributing to fiscal consolidation and to the stability in the banking sector, as well as easing the situation in vulnerable countries.