European Council issues country specific recommendations to member states

The Council of the European Union has recommended that the UK takes a "differentiated, growth friendly approach to fiscal tightening" and that the Eurogroup be given greater role in determining budgetary policies of countries operating under the single currency.

Earlier today, the Council issued country-specific recommendations on economic and employment policies to 23 of the 28 member states, including new state Latvia. Cyprus, Ireland, Greece, Croatia and Portugal were excluded, as they are currently subject to macroeconomic adjustment programmes.

In its revised recommendations to the UK, the Council says the priority should be ensuring "the correction of the excessive deficit in a sustainable manner by 2014/15”, through credible implementation of “ambitious structural reforms”.

In paritcular, a “differentiated, growth-friendly approach to fiscal tightening” should be taken, prioritising capital expenditure with high returns. Revenue could be raised, they say, through greater use of the value added tax (VAT).

Other key recommendations to the UK include:

  • Further liberating spatial planning laws and making the planning system more efficient to boost housing supply
  • Building on the Youth Contract and increasing the quality and duration of apprenticeships to address youth unemployment
  • Support low-income households by ensuring universal credit and other welfare reforms deliver “a fair tax-benefit system with clearer work incentives and support services”
  • Reduce barriers to entry in the banking sector

The Council also made a series of recommendations for countries in the euro area. It urged members to allow the Eurogroup – the finance ministers of member states operating under the euro – to play a more central role in coordinating and monitoring reforms at the national and euro area levels, in order to ensure stability and policy coherence. In particular, they recommend that the Eurogroup should discuss the Commission’s opinions of the draft budgetary plans of each member state in the euro area.

The Eurogroup will also be looking into the reasons behind differences in lending rates – especially to small businesses – across the euro area. European Central Bank president Mario Draghi mentioned this yesterday, although he said that the primary problem for small businesses in the euro area was a lack of clients rather than credit.

In addition, finance ministers would be exploring ways of overcoming the fragmentation of financial markets and improving the flow of credit to the real economy, for example, by ensuring “a level playing field in applying burden-sharing requirements in the recapitalisation of banks” and accelerating progress towards the creation of a banking union.