Fiscal and macro-structural challenges and policy recommendations for the Euro Area and its Member States under the 2014 semester cycle

Most of the country-specific recommendations (CSRs) issued over the years 2011-13 concentrated on the need to reduce budget deficits "in a growth-friendly way" and to increase competitiveness. Both policy goals remain appropriate today. However, the CSRs have seldom indicated what concrete policy actions would make budget consolidation growth- friendly. We argue that the emphasis on boosting investment as a precondition for sustainable growth is misplaced and that fundamental reform of bankruptcy and insolvency procedures is needed to deal with the debt overhang in the euro-area periphery. We also argue that the accountability of the President of the Eurogroup should be improved and that he/she should promote more collective action on common matters. Priorities for the next six months should focus on financial stability: completion of the banking union and dealing with the results of the asset quality reviews (AQRs).