               5.4.2019

               EN

               Official Journal of the European Union

               C 129/58

      P8_TA(2018)0060
      EU priorities for the 62nd session of the UN Commission on the Status of Women
      European Parliament recommendation of 1 March 2018 to the Council on the EU priorities for the 62nd session of the UN Commission on the Status of Women (2017/2194(INI))
      (2019/C 129/08)

         The European Parliament,

                  —

                  having regard to the 62nd session of the UN Commission on the Status of Women, its priority theme of ‘Challenges and opportunities in achieving gender equality and the empowerment of rural women and girls’ and its review theme of ‘Participation in and access of women to the media, and information and communications technologies and their impact on and use as an instrument for the advancement and empowerment of women’,

                  —

                  having regard to the Fourth World Conference on Women, held in Beijing in September 1995, the Declaration and Platform for Action for the empowerment of women adopted in Beijing and the subsequent outcome documents of the UN Beijing + 5, + 10, + 15 and + 20 Special Sessions on new actions and initiatives to implement the Beijing Declaration and Platform for Action, adopted on 9 June 2000, 11 March 2005, 2 March 2010 and 9 March 2015 respectively,

                  —

                  having regard to Article 157(4) of the Treaty on the Functioning of the European Union,

                  —

                  having regard to its resolution of 9 September 2015 on empowering girls through education in the EU (1),

                  —

                  having regard to its resolution of 8 March 2016 on the situation of women refugees and asylum seekers in the EU (2),

                  —

                  having regard to its resolution of 14 February 2017 on promoting gender equality in mental health and clinical research (3),

                  —

                  having regard to its resolution of 4 April 2017 on women and their roles in rural areas (4),

                  —

                  having regard to the UN resolution entitled ‘Transforming our world: the 2030 Agenda for Sustainable Development’, adopted at the UN Sustainable Development Summit on 25 September 2015 in New York,

                  —

                  having regard to Directive 2010/41/EU of the European Parliament and of the Council of 7 July 2010 on the application of the principle of equal treatment between men and women engaged in an activity in a self-employed capacity and repealing Council Directive 86/613/EEC (5),

                  —

                  having regard to the 1979 UN Convention on the Elimination of All Forms of Discrimination against Women (CEDAW),

                  —

                  having regard to General recommendation No 34 (2016) of the Committee on the Elimination of Discrimination against Women on the rights of rural women,

                  —

                  having regard to the Council of Europe Convention on preventing and combating violence against women and domestic violence (Istanbul Convention), and to its resolution of 12 September 2017 (6) on EU accession thereto,

                  —

                  having regard to the Paris Agreement of 12 December 2015,

                  —

                  having regard to Rule 113 of its Rules of Procedure,

                  —

                  having regard to the report of the Committee on Women’s Rights and Gender Equality (A8-0022/2018),

                  A.

                  whereas equality between women and men is a fundamental principle of the Union, as recognised in the Treaties and the Charter of Fundamental Rights;

                  B.

                  whereas the fifth UN Sustainable Development Goal (SDG5) is to achieve gender equality and empower all women and girls throughout the world, and should be fully integrated into the 2030 Agenda in order to achieve progress in all the SDGs and targets; whereas the SDGs include a goal to ‘double the agricultural productivity and incomes of small-scale food producers, in particular women’;

                  C.

                  whereas the Union and its Member States must be at the forefront of the empowerment of women and girls, and have a duty to work towards the achievement of full gender equality in the Union, and to promote this goal in all external relations;

                  D.

                  whereas social and economic circumstances and living conditions have changed substantially in recent decades and differ quite considerably between the various countries;

                  E.

                  whereas the lack of governmental action against gender inequality puts current and future achievements in the field at risk; whereas addressing traditional gender power relations, stereotypes and beliefs is key to ensuring women’s empowerment and poverty eradication;

                  F.

                  whereas the discrimination suffered by women also affects rural women; whereas the majority of women in the world live in rural areas and are therefore more exposed to multiple forms of discrimination on the basis of age, class, ethnicity, race, disability and gender identity;

                  G.

                  whereas women’s participation in the labour market in rural areas includes a wide range of jobs that go beyond conventional agriculture;

                  H.

                  whereas the work of rural women is often paid less than the work of men for the same output, is often formally unrecognised, as with unpaid care work, for example, and is not reflected in the number of women who are farm owners; whereas, however, women are key actors in achieving the transformational economic, environmental and social changes necessary for sustainable development;

                  I.

                  whereas rural women, who are often the primary care providers in their families and communities, encounter numerous difficulties in accessing childcare and elderly care for their families, which results in a disproportionate burden borne by women and hinders their integration into the labour market; whereas the provision of quality care services is essential for women and promotes work-life balance;

                  J.

                  whereas rural women encounter numerous difficulties in accessing adequate public health services owing to limited mobility and a lack of access to transport or means of contacting transport (for example, a mobile phone); whereas there is a need for comprehensive health services which address the physical, mental and emotional well-being of rural women (for example, to respond to gender-based violence); whereas access to sexual and reproductive health rights and education is more limited in rural areas;

                  K.

                  whereas retaining populations in rural areas, devoting particular attention to areas with natural constraints, is essential for society as whole, as the conservation of the environment and the landscape depend on it;

                  L.

                  whereas there is a direct link between gender inequality and environmental degradation;

                  M.

                  whereas climate change and its consequences have a particular and disproportionate negative impact on rural women and girls; whereas rural women are also powerful actors of change towards a more sustainable and ecologically sound agriculture and can play an important role in the creation of green jobs; whereas providing equal access for women farmers to land and other productive resources is key to achieving gender equality, food security and effective climate policies;

                  N.

                  whereas young women in rural areas continue to suffer from inequality and multiple forms of discrimination; whereas measures are needed to promote effective equality between men and women so that there are more work opportunities, including self-employment and in the science, technology, engineering and maths (STEM) sector, which enable them to remain in rural environments, thereby ensuring generational renewal and the survival of the agricultural sector and rural areas;

                  O.

                  whereas the agricultural sector, in which women play an important role, is key to the vitality of rural areas, and to enhancing generational renewal, social cohesion and economic growth; whereas agriculture should provide safe, nutritious and healthy food; whereas the agricultural sector should also contribute to the diversification of the landscape, to mitigating climate change and to preserving biodiversity and cultural heritage;

                  P.

                  whereas nutrition plays a significant role in the development and well-being of girls; whereas poor nutrition leads to physical and mental problems such as stunting, infertility, listlessness, fatigue and poor concentration, thereby reducing women’s economic potential and impacting on the well-being of the wider family and community;

                  Q.

                  whereas rural women need to be able to participate in decision-making bodies in the public sphere; whereas balanced representation is essential to achieving equality;

                  R.

                  whereas, with regard to risk prevention in the workplace, men and women are exposed to different factors; whereas, for example, calculations to evaluate the harmful effects of chemicals are often based on the physiques of men — who generally have greater muscle mass — and even disregard specific recommendations for pregnant or breastfeeding women; whereas, therefore, different factors need to be taken into account for adopting measures to ensure women’s health in agriculture;

                  S.

                  whereas discrimination also affects women in the media sector; whereas the media play a crucial role for all of society and it is desirable, therefore, that women — who represent at least 50 % of society — are fairly involved in creating media content and decision-making in media organisations;

                  T.

                  whereas the role of the media sector is crucial for the promotion of gender equality, since the media not only reflect but also create role models and standards of conduct, thus shaping public opinion and culture in a significant way;

                  U.

                  whereas media coverage contributes to a broad understanding among all layers of society of the complexity of the situations of women and men;

                  V.

                  whereas women and children are disproportionately impacted by conflict, accounting for the highest proportion of refugees either in camps or on the move in search of safety;

                  W.

                  whereas in many societies women do not have equal entitlement to land and property through legal means, which exacerbates poverty and limits their economic development;

                  X.

                  whereas trans women face disproportionate discrimination on the basis of their gender identity;

                  Y.

                  whereas stronger support for sexual and reproductive health and rights is a pre-condition for gender equality and women’s empowerment;

                  Z.

                  whereas social norms with regard to the roles of women and men place women in a situation of greater vulnerability, particularly in relation to their sexual and reproductive health, and in the light of harmful practices such as FGM or child, early and forced marriages;

         1.

            Addresses the following recommendations to the Council:

            General conditions for empowering women and girls

                  (a)

                  to reconfirm its unwavering commitment to the Beijing Platform for Action;

                  (b)

                  to support mothers who are entrepreneurs in rural areas as they face specific challenges; stresses that fostering entrepreneurship among these women may not only entail a successful reconciliation of work-life balance, but also serve to stimulate new job opportunities and better quality of life in rural areas, and to encourage other women to put their own projects into practice;

                  (c)

                  to put an end to all forms of discrimination against all women and girls everywhere and to combat all forms of violence, which represent serious violations of their fundamental rights, violations which are in turn a direct consequence of such discrimination;

                  (d)

                  to involve all governments and require them to draw up programmes aimed at eliminating sexual and gender-based violence and harmful practices, such as child, early and forced marriage and female genital mutilation and human trafficking;

                  (e)

                  to call on the Member States to fight gender stereotypes and invest in women’s and girls’ access to tailor-made education, lifelong learning and vocational training, especially in rural areas, particularly in STEM, as well as entrepreneurship and innovation, as these areas are important tools for achieving the SDGs, and to promote equality in the agricultural and food sectors, as well as in tourism and other industries in rural areas;

                  (f)

                  to develop policies aimed at eradicating poverty and ensuring an adequate standard of living for particularly vulnerable groups, including women and girls, especially through social protection systems;

                  (g)

                  to promote information, technical assistance measures and the exchange of good practices between Member States concerning the establishment of a professional status for assisting spouses in farming, enabling them to enjoy individual rights, including, in particular, maternity leave, social insurance against accidents at work, access to training and retirement pension rights;

                  (h)

                  to eliminate the gender pay gap, the lifetime remuneration (earnings) gap and the pensions gap;

                  (i)

                  to call on the Member States and regional and local authorities to guarantee universal access to adequate childcare and elderly care in rural areas;

                  (j)

                  to call on the Member States and regional and local authorities to provide affordable, high-quality facilities and public and private services for everyday life, especially in rural areas and with particular regard for health, education and care; notes that this would require the inclusion of rural childcare infrastructure, healthcare services, educational facilities, care homes for elderly and dependent people, sickness and maternity replacement services and cultural services;

                  (k)

                  to ensure gender mainstreaming, as a tool for integrating the principle of equality between women and men, and combating discrimination, into all policies and programmes by means of adequate financial and human resources;

                  (l)

                  to mobilise the necessary resources to achieve equality by mainstreaming gender into all policies and actions, including through gender budgeting, as a tool for integrating the principle of equality between women and men, and combating discrimination;

                  (m)

                  to ensure the full involvement of Parliament and its Committee on Women’s Rights and Gender Equality in the decision-making process regarding the EU’s position at the 62nd session of the UN Commission on the Status of Women;

            The empowerment of rural women

                  (n)

                  to recall that the Convention on the Elimination of All Forms of Discrimination against Women introduces the obligation to eliminate direct and indirect discrimination against women through legal, political and programmatic measures in all areas of life and that Article 14 of the convention is the only international obligation that addresses the specific needs of women in rural areas;

                  (o)

                  to ensure that rural women and girls have accessible, affordable and high-quality formal and informal education, including training, which should enable them to acquire new or to develop existing management, financial literacy, economic, marketing, and business skills, as well as citizenship, civil and political education, and technological and sustainable agriculture training; to ensure that women have the same opportunities and freedom of choice regarding the career they wish to pursue;

                  (p)

                  to ensure that rural women and girls can easily access credit and productive resources, and that they receive support on their entrepreneurial and innovation initiatives;

                  (q)

                  to safeguard the right of and access to high-quality universal healthcare which takes into account the physiological differences between women and men, and which is tailor-made for the needs of rural women and girls, particularly with regard to sexual and reproductive health and rights;

                  (r)

                  to condemn all forms of violence against women and to ensure that victims living in rural and remote areas are not deprived of equal access to assistance;

                  (s)

                  to improve the effectiveness, transparency and democratic nature of international, national, regional and local institutions which support and strengthen the roles of rural women, ensuring their presence through equal participation;

                  (t)

                  to facilitate the transition of rural women from the informal to the formal economy, and to recognise that women in rural areas work in a variety of fields and are often agents of change towards sustainable and ecologically sound agriculture, food security and the creation of green jobs;

                  (u)

                  to plan and implement climate-resilient agricultural policies which take due account of the specific threats faced by rural women as a result of natural or man-made disasters;

                  (v)

                  to guarantee the participation of rural women and girls in decision-making regarding the planning of and response to all stages of disasters and other crises, from early warning to relief, recovery, rehabilitation and reconstruction, and to guarantee their protection and safety in the event of disasters and other crises;

                  (w)

                  to take all the necessary measures to ensure that rural women enjoy a safe, clean and healthy environment;

                  (x)

                  to provide high-quality, accessible infrastructure and public services for rural women and communities and to invest in their development and maintenance;

                  (y)

                  to facilitate digital development, as it can significantly contribute to creating new jobs, by simplifying entry into self-employment, boosting competitiveness and tourism development and creating a better balance between work and family life;

                  (z)

                  to support the establishment and ongoing activities of local community groups, which should meet periodically to discuss development-related issues and challenges and to take constructive action;

                  (aa)

                  to call on the Member States, the social partners and civil society to support and promote the participation of women in decision-making and in the governing bodies of professional, business and trade union associations and organisations in the areas of rural policies, health, education and agriculture, as well as in management and representation bodies through an equal presence;

                  (ab)

                  to recognise and support the active role of women in rural areas and their contribution to the economy as entrepreneurs, heads of family businesses and promoters of sustainable development;

                  (ac)

                  to ensure rural women’s ownership rights, in particular of farm holdings and inheritance of land, which is an important tool for their economic empowerment and for enabling them to fully participate in and benefit from rural development;

                  (ad)

                  to ensure rural women’s access to productive resources, e-platforms, markets, marketing facilities and financial services; to promote local, regional and traditional markets, including food markets, which are places where women generally have more opportunities to sell their products directly, leading to greater economic empowerment;

                  (ae)

                  to promote the employment of women in the STEM sector, particularly in positions which contribute to the circular economy and the fight against climate change;

                  (af)

                  to develop employment policies, services and programmes to address the precarious situation of rural women, who often work in the informal sector and who can face multiple forms of intersectional discrimination on the basis of sex, age, class, religion, ethnicity, disability or gender identity; to provide tailored assistance and support for their needs and interests;

                  (ag)

                  to establish programmes to ensure that women and their families have access to universal social protection systems which have an impact on their future retirement situation and thus reduce the pensions gap, which is multifaceted in nature;

                  (ah)

                  to collect gender-disaggregated data and develop statistics on the values, situations, conditions and needs of rural women in order to enable adequate policies to be drawn up; to monitor the situation of women in rural areas on a regular basis;

                  (ai)

                  to urge the ratification and implementation of the UN Convention on the Rights of Persons with Disabilities, including Article 6 thereof on ‘Women with disabilities’; to ensure the accessibility of goods, infrastructure and services;

                  (aj)

                  to call on the Commission, the Member States and regional and local governments to provide affordable, high-quality facilities and public and private services geared towards everyday life in rural areas, and to create the necessary conditions to improve the work-life balance for women in rural areas, in particular by guaranteeing suitable care facilities for dependants, accessible healthcare and public transport;

                  (ak)

                  to stress the importance of including safeguards in EU policies on the living and working conditions of women hired as seasonal agricultural workers, especially as regards the need for them to be given social protection, health insurance and healthcare; to encourage regional, local and national authorities and other institutions to guarantee the fundamental human rights of migrant and seasonal workers and their families, especially of women and vulnerable people, and to foster their integration into the local community;

            Participation in and access of women to the media, and information and communications technologies and their impact on and use as an instrument for the advancement and empowerment of women

                  (al)

                  to ensure access to reliable high-speed broadband internet infrastructure and services; to invest in and promote the use of new technologies in rural areas and agriculture; to acknowledge the important social, psychological and economic benefits thereof; to insist on the development of a holistic approach (the ‘digital village’); to promote equal opportunities in access to and training in the use of these technologies;

                  (am)

                  to devote attention to women’s presence and advancement in the media sector and to non-stereotypical media content;

                  (an)

                  to encourage public media organisations to establish their own equality policies providing for a balanced representation of men and women in decision-making bodies;

                  (ao)

                  to ensure that the growing sexualised portrayal of women and girls in the media is combated effectively, with due respect for freedom of expression;

                  (ap)

                  to encourage media organisations to prevent procedures of an organisational culture which is often uncongenial to a work-life balance;

                  (aq)

                  to tackle the gender pay gap in the media sector through anti-discrimination measures, ensuring equal pay for equal work between women and men;

                  (ar)

                  to take all the necessary measures against acts of violence against investigative journalists, devoting particular attention paid to female journalists, who are often more vulnerable;

         2.

            Instructs its President to forward this recommendation to the Council and, for information, to the Commission.

         (1)  OJ C 316, 22.9.2017, p. 182.

         (2)  OJ C 50, 9.2.2018, p. 25.

         (3)  Texts adopted, P8_TA(2017)0028.

         (4)  Texts adopted, P8_TA(2017)0099.

         (5)  OJ L 180, 15.7.2010, p. 1.

         (6)  Texts adopted, P8_TA(2017)0329.


title: Council Recommendation of 9 April 2019 on the economic policy of the euro area

text:
               12.4.2019

               EN

               Official Journal of the European Union

               C 136/1

      COUNCIL RECOMMENDATION
      of 9 April 2019
      on the economic policy of the euro area
      (2019/C 136/01)
      THE COUNCIL OF THE EUROPEAN UNION,
      Having regard to the Treaty on the Functioning of the European Union, and in particular Article 136 in conjunction with Article 121(2) thereof,
      Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies (1), and in particular Article 5(2) thereof,
      Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances (2), and in particular Article 6(1) thereof,
      Having regard to the recommendation of the European Commission,
      Having regard to the conclusions of the European Council,
      Having regard to the opinion of the Economic and Financial Committee,
      Having regard to the opinion of the Economic Policy Committee,
      Whereas:

                  (1)

                  The euro area is entering its sixth year of uninterrupted economic growth, and the negative output gap is closing. Risks to the outlook are increasing, however, and growth is expected to be moderate. Potential growth remains low compared to levels recorded in recent decades, and country divergences persist as a result of notable differences in economic resilience across Member States. Real wage growth is still moderate and has been trailing behind productivity developments. Nominal wage growth and core inflation are picking up with continued employment growth, but pockets of labour underutilisation or high unemployment remain in some Member States, while in other Member States labour supply is scarce. The euro area has recorded a large current-account surplus over the past five years, as a result of the dynamics of euro-area exports and the improved competitive position of the euro area, while country divergences continue to be significant on the external side. Member States that recorded large external deficits for a long time still have large negative net international investment positions that represent vulnerabilities, as they are generally mirrored by large stocks of private or government debt. As stated in the 2019 Alert Mechanism Report adopted by the Commission on 21 November 2018, an appropriate pace of deleveraging, a supportive growth and inflation environment, and continued reforms to increase productivity are crucial for successful rebalancing in the euro area. Favourable demand dynamics are also important, and large surplus Member States would also contribute to rebalancing by strengthening the conditions that support wage growth while respecting the role of social partners as well as public and private investment.

                  (2)

                  Increasing long-run growth potential and overcoming national and regional disparities requires further increases in labour participation rates, growth-enhancing structural reforms and investment in tangibles and non-tangibles in order to increase productivity and innovation, in particular in those Member States whose growth potential is clearly lower than the euro-area average. This is important for strengthening economic, social and territorial cohesion in the euro area.

                  (3)

                  Consistency and balance in the macroeconomic policy mix of the euro area, including monetary, fiscal and structural policies, is crucial to ensure robust, inclusive and sustainable economic growth. In recent years, the European Central Bank resorted to unconventional monetary policy tools to bring inflation back towards its medium-term inflation objective, while supporting growth and job creation. Appropriately differentiated fiscal policies and focus on structural reforms are needed in order to continue supporting growth in the short and long term.

                  (4)

                  Strengthening the fiscal sustainability of the euro area and of the euro-area Member States requires differentiated national policies that fully respect the Stability and Growth Pact, taking into account fiscal space and spillovers across countries. Coordination of national fiscal policies based on the common fiscal rules is essential for the proper functioning of the Economic and Monetary Union (EMU). The common fiscal rules are geared towards pursuing debt sustainability at national level, while providing room for macroeconomic stabilisation. The euro area fiscal stance remained on average broadly neutral over the period 2015–2018 and, based on the Commission forecast, is projected to become slightly expansionary in 2019 in spite of output being above potential. Rebuilding fiscal buffers is especially important in Member States that still have high levels of public debt. Doing so would also reduce their vulnerability to shocks and allow for the full functioning of automatic stabilisers in the next downturn. Increasing public investment, in particular in Member States with fiscal space and low levels of public investment, supports growth and rebalancing.

                  (5)

                  Fiscal structural reforms remain crucial for improving fiscal sustainability and strengthening economic growth potential. Better-functioning national fiscal frameworks, well-managed spending reviews and effective and transparent public procurement can strengthen the efficiency and effectiveness of public expenditure and the credibility of fiscal policies. Improving the composition of national budgets, on both the revenue and expenditure sides, including by shifting resources towards investment, would increase the growth impact of public budgets and raise productivity in the longer term. Simplifying and modernising tax systems and addressing tax fraud, evasion and avoidance, namely through measures against aggressive tax planning, are essential to making tax systems more efficient and fairer. Ensuring that tax systems favour the deepening of the single market and encourage competition between firms is key in improving the business environment in and the resilience of the euro area and the Member States' economies. The common consolidated corporate tax base would be instrumental in this endeavour.

                  (6)

                  Structural and institutional features of labour and product markets and well-functioning public administrations are important for the resilience of euro-area Member States. Resilient economic structures prevent shocks from having significant and long-lasting effects on income and labour supply. These structures can facilitate the operation of fiscal and monetary policy and contain divergences, creating conditions for sustainable and inclusive growth. Better coordination and implementation of structural reforms, in particular those prescribed in the country-specific recommendations, can create positive spillovers between Member States and strengthen the positive effects across the euro area. Reforms that increase competition in product markets, promote resource efficiency and improve the business environment and the quality of institutions, in particular the effectiveness of the justice system, foster economic resilience in the euro area and the Member States. The Single Market, which has proven to be a major engine of growth and convergence between Member States, still holds considerable unexploited potential; and progress is needed to deepen it, particularly in services, digital activities, energy and transport, thereby ensuring timely implementation and better enforcement of legislation.

                  (7)

                  The European Pillar of Social Rights sets out 20 principles to foster equal opportunities and access to the labour market, fair working conditions and social protection and inclusion. Reforms that promote labour market participation, support successful labour market transitions, promote the creation of quality jobs and reduce segmentation can help boost inclusive growth, improve economic resilience and automatic stabilisation, reduce inequalities, address poverty and social exclusion, and help face the challenges of a changing economy. Individualised support for job searching, training and requalification can result in effective and timely activation. Access to high-quality education and training throughout the life cycle is vital and requires adequate investment in human capital and skills, in particular for the low-skilled. Such reforms and investments improve employability, innovation, productivity and wages in the medium and longer term, increasing the resilience of the euro area and promoting social inclusion and mobility within Member States and across the euro area. The tax burden in the euro area is relatively high and skewed towards labour; a shift away from labour to tax bases that are less detrimental to growth, such as property, consumption or environmental taxes, could strengthen labour supply and demand. Employment protection legislation needs to provide for fair and decent working conditions for all workers, especially in view of emerging new forms of employment and new types of contract that bring along new opportunities but also challenges related to job security and social protection coverage.
                  Effective and sustainable social protection systems are also crucial to ensure adequate income and access to quality services. Pension reforms and policies on work-life balance are also key in fostering labour-market participation. Unnecessary restrictions on job, sectoral and geographical mobility may hamper reallocation within Member States and across the euro area. Social partners' involvement in employment, social and related economic reforms is crucial.

                  (8)

                  While the robustness of the euro-area financial sector has increased since the crisis, vulnerabilities remain to be addressed. Private-sector debt remains elevated, and tax systems still feature a debt bias. Substantial increases in sovereign bond yields risk eroding banks' capital, with the potential for negative spillovers across the euro area. The need to adapt banks' business models, the low-interest-rate environment and increasing competition from other forms of finance continue to exert pressure on banks' profitability. There has been sustained progress in risk reduction, notably on non-performing loan (NPL) reduction and minimum requirements for own funds and eligible liabilities build-up. Nonetheless, national NPL ratios that remain far above the euro-area average require further sustained efforts. In March 2018 the Commission presented a risk-reduction package both to allow for legacy NPLs to be addressed and to avoid their future build-up. The November 2016 banking package, which aims to further reduce risks by implementing internationally agreed norms on capital buffers, subordination of liabilities and liquidity in banks, preserving the balance of the Council compromise, is important for further progress towards risk reduction and thereby towards risk sharing.
                  Following serious breaches of anti-money-laundering rules, the Commission proposed measures to reinforce the European Banking Authority and supervisory cooperation to strengthen the enforcement of the regulatory framework in this area. Significant progress has been made in establishing the Banking Union, including through the recent agreement on the operationalisation of a common backstop for the Single Resolution Fund; but it remains unfinished. There are limitations in the current set-up for liquidity provision in resolution and the lack of a common deposit insurance scheme and of a common backstop for the Single Resolution Fund, hampering the ability of the Banking Union to sever the link from banks to sovereigns.

                  (9)

                  Strengthening the architecture of the EMU requires the completion of the Banking Union and the Capital Markets Union as a matter of priority, but also action on all the other elements in the statement of the Euro Summit of 14 December 2018. In December 2017 and May 2018 the Commission published a set of proposals setting further steps towards completing the EMU, including a European Investment Stabilisation Function and a Reform Support Programme (proposed under the Multiannual Financial Framework). The proposals build on the reflection paper on the deepening of the EMU of May 2017 and the Five Presidents' Report of June 2015. At the Euro Summit of 13-14 December 2018, decisions were taken on the Banking Union and the further development of the ESM, which leaders at the Euro Summit agreed will be the provider of the common backstop to the Single Resolution Fund (SRF) at the latest by the end of the transition period.
                  Work will proceed to prepare the necessary amendments to the ESM Treaty (including the common backstop to the SRF), based on the term sheet endorsed by leaders at the Euro Summit. The backstop will be introduced earlier, provided that sufficient progress has been made in risk reduction to be assessed in 2020. Work will continue in the first half of 2019, in particular through the setting-up of a high-level working group on the European deposit insurance scheme (EDIS) and further work on the set-up for liquidity provision in resolution. Work will also proceed on the design, implementation arrangements and timing of a budgetary instrument for convergence and competitiveness for the euro area and, on a voluntary basis, for the non-euro area Member States participating in the Exchange Rate Mechanism (ERM II). The features of the instrument will be agreed in June 2019. The instrument will be adopted in accordance with the legislative procedure, as foreseen by the Treaties, on the basis of the relevant Commission proposal, to be amended if necessary. All these reforms could contribute to strengthening the international role of the euro, making it more commensurate to the global economic and financial relevance of the euro area. It is important that they are discussed in an open and transparent manner vis-à-vis non-euro-area Member States, fully respecting the Union's internal market.

                  (10)

                  The Employment Committee and the Social Protection Committee have been consulted on the employment and social aspects of this Recommendation,

            HEREBY RECOMMENDS that, in the period 2019-2020, euro-area Member States take action, individually and collectively within the Eurogroup, to:

                  1.

                  Deepen the Single Market, improve the business environment and the quality of institutions, and pursue resilience-enhancing reforms for the product and services markets. Reduce external debt and pursue reforms to boost competitiveness, in particular through productivity in euro-area Member States with current-account deficits or high external debt, and strengthen the conditions that support wage growth in a manner that respects the role of social partners. Implement measures that foster investment in euro-area Member States with large current-account surpluses.

                  2.

                  While pursuing policies in a manner that fully respects the Stability and Growth Pact, support public and private investment and improve the quality and composition of public finances. Rebuild fiscal buffers, especially in euro-area Member States with high levels of public debt. Support and implement EU actions to combat aggressive tax planning.

                  3.

                  Shift taxes away from labour and strengthen education and training systems and investment in skills. Improve the effectiveness of active labour market policies that support successful labour market transitions. Promote the creation of quality jobs and address labour market segmentation. Ensure adequate and sustainable social protection systems across the euro area.

                  4.

                  Make the backstop for the SRF operational and anticipate this, provided sufficient progress has been made in risk reduction. Pursue work on the EDIS, in particular by setting up a high-level working group. Strengthen the European regulatory and supervisory framework. Work further on solutions for overcoming limitations in the current set-up for liquidity provision in resolution. Promote orderly deleveraging of large stocks of private debt. Continue to swiftly reduce the level of non-performing loans in the euro area and prevent the build-up of such loans, including by removing debt bias in taxation. Make ambitious progress on the Capital Markets Union.

                  5.

                  Make swift progress on deepening the EMU, building on the statement of the Euro Summit of 14 December 2018, also with a view to strengthening the international role of the euro, taking into account the proposals of the Commission and the initiatives of Member States, while fully respecting the Union's internal market and in an open and transparent manner vis-à-vis non-euro-area Member States.

         Done at Luxembourg, 9 April 2019.

               For the Council

               The President

            G. CIAMBA

         (1)  OJ L 209, 2.8.1997, p. 1.

         (2)  OJ L 306, 23.11.2011, p. 25.


title: Recommendation of the European Systemic Risk Board of 27 June 2019 on medium-term vulnerabilities in the residential real estate sector in Denmark (ESRB/2019/5)2019/C 366/02

text:
               30.10.2019

               EN

               Official Journal of the European Union

               C 366/7

      RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD
      of 27 June 2019
      on medium-term vulnerabilities in the residential real estate sector in Denmark
      (ESRB/2019/5)
      (2019/C 366/02)
      THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,
      Having regard to the Treaty on the Functioning of the European Union,
      Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Articles 3, 16, 17 and 18 thereof,
      Whereas:

                  (1)

                  The real estate sector plays an important role in the economy and its developments may have a material influence on the financial system. Past financial crises have demonstrated that unsustainable developments in real estate markets may have severe repercussions on the stability of the financial system and of the economy as a whole, which may also lead to negative cross-border spillovers. Adverse real estate market developments in some Member States have, in the past, resulted in large credit losses and/or had a negative impact on the real economy. Such effects reflect the close interplay between the real estate sector, funding providers and other economic sectors. Furthermore, the strong feedback loops between the financial system and the real economy reinforce any negative developments.

                  (2)

                  These links are important because they mean that risks originating in the real estate sector may have a systemic impact that is procyclical in nature. Financial system vulnerabilities tend to accumulate during the upswing phase of the real estate cycle. The perceived lower risks of, and easier access to, funding may contribute to a rapid expansion of credit and investment, together with an increased demand for real estate, which puts upward pressure on property prices. Since the resulting higher collateral values further favour the demand for, and supply of, credit, these self-reinforcing dynamics may result in potential systemic consequences. Conversely, during the downturn phase of the real estate cycle, tighter credit conditions, higher risk aversion and downward pressure on real estate prices may adversely affect the resilience of borrowers and lenders, thereby weakening economic conditions.

                  (3)

                  Vulnerabilities relating to residential real estate can be a source of systemic risk and they may affect financial stability both directly and indirectly. Direct effects are credit losses on mortgage portfolios due to adverse economic or financial conditions and simultaneous negative developments in the residential real estate market. Indirect effects could be related to adjustments in household consumption, leading to further consequences for the real economy and financial stability.

                  (4)

                  As stated in recital 4 of Recommendation ESRB/2013/1 (2), the ultimate objective of macroprudential policy is to contribute to the safeguard of the stability of the financial system as a whole, including by strengthening the resilience of the financial system and decreasing the build-up of systemic risks, thereby ensuring a sustainable contribution of the financial sector to economic growth.

                  (5)

                  To this end, macroprudential authorities may use one or more of the capital-based macroprudential measures set out in Directive 2013/36/EU of the European Parliament and of the Council (3) and Regulation (EU) No 575/2013 of the European Parliament and of the Council (4), and/or borrower-based macroprudential measures, which are exclusively based on national law, depending on the assessment of risks. While the capital-based measures are primarily aimed at increasing the resilience of the financial system, the borrower-based measures may be particularly suitable for preventing the further build-up of systemic risks.

                  (6)

                  In addition, Recommendation ESRB/2013/1 recommends that Member States establish a legal framework that permits the macroprudential authorities to have direct control or recommendation powers over the macroprudential instruments identified in that Recommendation.

                  (7)

                  In 2016, the European Systemic Risk Board (ESRB) conducted a Union-wide assessment of the vulnerabilities relating to residential real estate (5). This assessment enabled the ESRB to identify a number of medium-term vulnerabilities in several countries as sources of systemic risk to financial stability, which led to the issuance of warnings to eight countries, of which Denmark was one (6).

                  (8)

                  In 2016 the main vulnerability identified in the residential real estate market in Denmark related to high household indebtedness. A significant share of mortgagors had variable interest rate debt or debt exceeding the value of their home, making them vulnerable to adverse economic or financial conditions or adverse developments in the residential real estate market. Even though there were no overall signs of overvaluation, house prices had been increasing robustly particularly in major cities, and were close to pre-crisis levels.

                  (9)

                  The ESRB has recently concluded a systematic and forward-looking European Economic Area (EEA)-wide assessment of vulnerabilities relating to residential real estate (7).

                  (10)

                  As regards Denmark, this recent assessment has revealed that, since 2016, even though household indebtedness has decreased, it nevertheless remains at one of the highest levels in the EEA. Moreover, the share of existing mortgage loans with deferred amortisation is significant, which makes households structurally more vulnerable to adverse economic or financial conditions or adverse developments in the residential real estate market. In addition, despite the fact that house price growth has slowed and apartment prices in Copenhagen have reached a plateau in recent years, the previous dynamics have led to pockets of overvaluation in the major cities, in particular in Copenhagen. Against this background, a legally binding minimum down payment requirement, which was set at 5 % in 2015, has provided some (albeit limited) additional collateral in the event of a decrease in house prices.

                  (11)

                  In 2018, consumer protection legislation introduced restrictions on the provision of residential mortgage products to mortgagors with a debt-to-income (DTI) ratio (before tax) above 4 and an LTV ratio above 60 %. These restrictions require that: (a) interest rates are fixed for at least 5 years; and (b) deferred amortisation is applicable only if the interest rate on a loan is fixed for at least 30 years. Furthermore, the Supervisory Diamond for mortgage banks was announced in 2014. It comprises a number of benchmarks and limit values set for special risk areas within banking activities, and is aimed at increasing the credit quality of the stock of mortgage loans by 2018 and 2020, thereby affecting the production of new loans. Moreover, in 2018 the countercyclical capital buffer rate was increased twice: from 0 % to 0,5 % from 1 March 2019; and from 0,5 % to 1 % from September 2019. In addition, the Danish Systemic Risk Council has recommended a further increase from 1 % to 1,5 % from June 2020 and has issued forward guidance that it should be increased to its potential maximum of 2,5 % unless there is a significant change in the build-up of risk in the Danish financial system. Finally, Finanstilsynet (the Danish Financial Supervisory Authority) has issued a guideline that requires credit institutions to display caution in their credit assessment of households when lending to real estate in geographical areas in which residential real estate prices have been growing.

                  (12)

                  Despite the number of macroprudential measures in place, and given the high level of household indebtedness and the significant share of mortgagors vulnerable to adverse economic conditions or adverse developments in the residential real estate market, the current capital-based measures may not be sufficient to address the accumulated vulnerabilities. Furthermore, tightening of existing or activation of additional borrower-based measures may be necessary in the medium term if vulnerabilities related to household indebtedness, overvaluation of house prices and lending standards increase.

                  (13)

                  While cyclical factors play an important role in fuelling the vulnerabilities identified in Denmark, there are also structural factors that have driven these vulnerabilities, resulting in a higher level of systemic risk. These factors include: (i) complex rental market regulations with caps on rent in a significant share of apartment buildings in the major cities, which creates a lack of housing supply and exerts upward pressure on house prices and debt for households that buy their own property; and (ii) the tax deductibility of mortgages, which may act as an incentive for households to overborrow. Furthermore, since 2001 the system of housing property taxation has been decoupled from market prices, resulting in a decline in the effective tax rate, especially in the major cities. In 2017 the Danish parliament passed into law a bill on a new housing taxation system that re-establishes the link between taxes payable and current residential real estate market prices, which will take effect in 2021.

                  (14)

                  Therefore, the ESRB has concluded that while the macroprudential measures that are in place or available in Denmark are appropriate, they are partially sufficient to address the vulnerabilities related to household indebtedness in the medium term. Consequently, further policy action is required to address these vulnerabilities, which can be a source of systemic risk. The measures proposed in this Recommendation are aimed at complementing the existing macroprudential measures in Denmark. Given that the vulnerabilities are, to some extent, driven by structural factors which go beyond macroprudential policy, other policies are needed to complement and support the current macroprudential measures, with the aim of addressing factors contributing to the build-up of systemic risks in the residential real estate market in Denmark more efficiently and effectively, without producing excessive costs for the Danish real economy and financial system.

                  (15)

                  The purpose of this Recommendation is to recommend: a) the activation of further, or the tightening of existing, capital-based measures in order to ensure the resilience of the banking sector against the medium-term vulnerabilities identified in Denmark; b) the monitoring of vulnerabilities and the activation of further, or the tightening of existing, borrower-based measures if house price growth and credit growth accelerate in the medium term. This Recommendation also aims to emphasise the need for broader policy action aiming to curb factors which facilitate or promote increasing household indebtedness.

                  (16)

                  This Recommendation is without prejudice to the monetary policy mandates of the central banks in the Union.

                  (17)

                  ESRB recommendations are published after the General Board has informed the Council of the European Union of its intention to do so and provided the Council with an opportunity to react, and after the addressees have been informed of the intention to publish,

            HAS ADOPTED THIS RECOMMENDATION:
      SECTION 1

         RECOMMENDATIONS

         Recommendation A – Activation or tightening of capital-based measures

      It is recommended that the macroprudential authority, the designated authority or the competent authority in Denmark, as applicable, ensure, by activating additional or tightening existing capital-based measures, the resilience of credit institutions authorised in Denmark in the face of the potential materialisation of systemic risk related to residential real estate which could lead to direct and indirect credit losses stemming from mortgage loans or arising as a consequence of the decrease in consumption by households with housing loans.

         Recommendation B — Monitoring of vulnerabilities and activation or tightening of borrower-based measures

                  1.

                  It is recommended that the Danish national authorities entrusted with the monitoring of systemic risks closely monitor vulnerabilities related to household indebtedness, overvaluation of house prices and lending standards for new mortgage loans over the medium term, including, inter alia, by:

                              a)

                              assessing — using loan-level data for new mortgage loans — the ability of borrowers taking out new mortgage loans to withstand adverse economic or financial conditions or adverse developments in the residential real estate market; and

                              b)

                              assessing the sustainability of house prices and the potential for their decrease in the event of adverse economic or financial conditions.

                  2.

                  It is recommended that, in order to prevent the excessive accumulation of credit risk, the Danish authority entrusted with the activation of borrower-based measures activate additional, or tighten existing, borrower-based measures, if the results of the monitoring carried out pursuant to point (a) of sub-Recommendation B(1) provide evidence that a significant or an increasing share of borrowers taking out new mortgage loans might not be able to service their debt or maintain consumption under adverse economic or financial conditions or following adverse developments in the residential real estate market.

                  3.

                  It is recommended that Denmark increase the legally binding minimum down payment requirement, if the results of the monitoring carried out pursuant to paragraph 1(b) provide evidence that the overvaluation of house prices has increased, in order to ensure that collateral for new mortgage loans is sufficient to cover credit losses corresponding to the potential decrease in house prices under adverse economic or financial conditions and to the estimated decrease in house prices in the event of a negative scenario.

         Recommendation C — Structural changes related to mortgage loans and the residential real estate sector

      It is recommended that Denmark review its policies with the aim of curbing the structural factors that have driven the vulnerabilities identified in Denmark as a source of systemic risk as they provide incentives for households to take on excessive mortgage debt, or cause excessive growth in house prices and mortgage debt.
      SECTION 2

         IMPLEMENTATION

      1.   Definitions

      For the purposes of this Recommendation the following definitions apply:

                  (a)

                  ‘borrower-based measures’ means macroprudential measures that target borrowers;

                  (b)

                  ‘direct control’ means a real and effective capacity to impose and modify, where necessary to achieve an ultimate or intermediate objective, macroprudential measures applicable to the financial institutions that are under the scope of action of the corresponding macroprudential authority;

                  (c)

                  ‘recommendation powers’ means the capacity to guide, by means of recommendations, the application of macroprudential instruments, where necessary to achieve an ultimate or intermediate objective;

                  (d)

                  ‘debt-to-income ratio’ (DTI ratio) means the total debt of the borrower at the moment of loan origination relative to the borrower’s total annual disposable income at the moment of loan origination;

                  (e)

                  ‘loan-to-value ratio’ (LTV ratio) means the sum of all loans or loan tranches secured by the borrower on the immoveable property at the moment of loan origination relative to the value of the property at the moment of loan origination;

                  (f)

                  ‘medium term’ means within a three-year horizon;

                  (g)

                  ‘macroprudential authority’ means a national macroprudential authority with the objectives, arrangements, powers, accountability requirements and other characteristics set out in Recommendation ESRB/2011/3 (8);

                  (h)

                  ‘debt-service’ means the combined interest and principal repayment on a borrower’s total debt over a given period (generally one year);

                  (i)

                  ‘debt-service-to-income ratio’ (DSTI ratio) means the annual total debt service relative to the borrower’s total annual disposable income at the moment of loan origination;

                  (j)

                  ‘maturity’ means the duration of the residential real estate loan contract expressed in years at the moment of loan origination.

            2.   Criteria for implementation

      1.   The following criteria apply to the implementation of this Recommendation:

                  (a)

                  due regard should be given to the principle of proportionality, taking into account the objective and content of Recommendation A, of Recommendation B and of Recommendation C;

                  (b)

                  when activating additional, or tightening existing, capital-based measures under Recommendation A, their calibration and phasing-in should take into account the position of Denmark in the economic and financial cycles, and any potential implications as regards the associated costs and benefits;

                  (c)

                  when activating additional, or tightening existing, borrower-based measures under Recommendation B, their calibration and phasing-in should take into account the position of Denmark in the economic and financial cycles, and any potential implications as regards the associated costs and benefits;

                  (d)

                  when increasing the minimum down payment requirement under Recommendation B, the calibration and phasing-in of such measure should take into account the position of Denmark in the economic and financial cycles, and any potential implications as regards the associated costs and benefits;

                  (e)

                  as regards Recommendation C, when making policy changes, the phasing-in of such measures should take into account the position of Denmark in the economic and financial cycles, so that these measures do not serve to amplify or trigger the materialisation of accumulated vulnerabilities in the residential real estate sector in Denmark;

                  (f)

                  specific criteria for compliance with Recommendation A, with Recommendation B and with Recommendation C are set out in Annex I.

            2.   The addressees of this Recommendation are requested to report to the ESRB and to the Council on the actions undertaken in response to this Recommendation, or adequately justify any inaction. The reports should as a minimum contain:

                  (a)

                  information on the substance and timeline of the actions undertaken;

                  (b)

                  an assessment of the vulnerabilities related to household indebtedness, overvaluation of house prices and lending standards for new mortgage loans, including the distribution of new mortgage loans according to their LTV, DTI and DSTI ratios, maturities, and amortisation profiles, with the relevant ratios being calculated in accordance with Annex IV to Recommendation ESRB/2016/14 of the European Systemic Risk Board (9), together with the functioning of the actions undertaken, having regard to the objectives of this Recommendation;

                  (c)

                  a detailed justification of any inaction or departure from this Recommendation, including any delays.

            3.   Timeline for the follow-up

      The addressees of this Recommendation are requested to report to the ESRB and to the Council on the actions taken in response to this Recommendation, or adequately justify any inaction, in compliance with the following timelines:

                  (a)

                     Recommendation A

                  By 31 October 2020, and yearly thereafter until 31 October 2022, the addressee of Recommendation A is requested to submit to the ESRB and to the Council a report on any actions taken with regard to implementing capital-based measures. Where there is more than one body responsible for taking actions to address the vulnerabilities identified, one joint report should be submitted.

                  (b)

                     Recommendation B

                  By 31 October 2020, and yearly thereafter until 31 October 2022, the addressees of Recommendation B are requested to submit to the ESRB and to the Council a report on monitoring vulnerabilities related to household indebtedness and actions taken to address such vulnerabilities. Where there is more than one body responsible for taking actions to address the vulnerabilities identified, one joint report should be submitted.

                  (c)

                     Recommendation C

                  By 31 October 2022, the addressee of Recommendation C is requested to deliver to the ESRB and to the Council a report on the implementation of Recommendation C. Where there is more than one body responsible for taking actions to address the vulnerabilities identified, one joint report should be submitted.

            4.   Monitoring and assessment

                  1.

                  The ESRB Secretariat will:

                              (a)

                              assist the addressees, ensuring the coordination of reporting, the provision of relevant templates and detailing, where necessary, the procedure and the timeline for the follow-up;

                              (b)

                              verify the follow-up by the addressees, provide assistance at their request, and submit follow-up reports to the General Board. Three assessments will be initiated as follows:

                                          (i)

                                          by 31 December 2020, regarding the implementation of Recommendations A and B;

                                          (ii)

                                          by 31 December 2021, regarding the implementation of Recommendations A and B; and

                                          (iii)

                                          by 31 December 2022, regarding the implementation of Recommendations A, B and C.

                  2.

                  The General Board will assess the actions and justifications reported by the addressees and, where appropriate, may decide that this Recommendation has not been followed and that an addressee has failed to provide adequate justification for its inaction.

         Done at Frankfurt am Main, 27 June 2019.

               Head of the ESRB Secretariat,

               on behalf of the General Board of the ESRB

            Francesco MAZZAFERRO

         (1)  OJ L 331, 15.12.2010, p. 1.

         (2)  Recommendation ESRB/2013/1 of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (OJ C 170, 15.6.2013, p. 1).

         (3)  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

         (4)  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).

         (5)  See ‘Vulnerabilities in the EU Residential Real Estate Sector’, ESRB, November 2016, available on the ESRB’s website at www.esrb.europa.eu

         (6)  Warning ESRB/2016/07 of the European Systemic Risk Board of 22 September 2016 on medium-term vulnerabilities in the residential real estate sector of Denmark (OJ C 31, 31.1.2017, p. 47).

         (7)  See ‘Vulnerabilities in the residential real estate sectors of EEA countries’, ESRB, 2019, available on the ESRB’s website at www.esrb.europa.eu

         (8)  Recommendation ESRB/2011/3 of the European Systemic Risk Board of 22 December 2011 on the macro-prudential mandate of national authorities (OJ C 41, 14.2.2012, p. 1).

         (9)  Recommendation ESRB/2016/14 of the European Systemic Risk Board of 31 October 2016 on closing real estate data gaps (OJ C 31, 31.1.2017, p. 1).

         ANNEX I

            SPECIFICATION OF COMPLIANCE CRITERIA APPLICABLE TO THE RECOMMENDATIONS

            Recommendation A — Activation or tightening of capital-based measures

         The following compliance criteria are applicable to Recommendation A.

                     1.

                     Prior to activating additional, or tightening existing, capital-based measures, an assessment should be made of the position of Denmark in the economic and financial cycles in order to determine whether activating such measures would be appropriate.

                     2.

                     After the activation of the capital-based measures, their further tightening or the activation of additional macroprudential measures may be needed to address the vulnerabilities identified in Denmark; this will depend on the choice of the capital-based measures activated, on the initial calibration of those activated measures and on the results of the assessment of vulnerabilities.

            Recommendation B — Monitoring of vulnerabilities and activation or tightening of borrower-based measures

         The following compliance criteria are applicable to Recommendation B.

                     1.

                     Prior to activating additional, or tightening existing, borrower-based measures, an assessment should be made of the position of Denmark in the economic and financial cycles in order to determine whether such activation or tightening would be appropriate.

                     2.

                     Prior to increasing the existing minimum down payment requirement, an assessment should be made of the position of Denmark in the economic and financial cycles in order to determine an appropriate calibration and phasing-in of the measure.

            Recommendation C — Structural changes related to mortgage loans and the residential real estate sector

         The following compliance criterion is applicable to Recommendation C.
         When formulating policy options, and before implementing any policy changes, an assessment should be made of the impact of the proposed measures considering the position of Denmark in the economic and financial cycles, to ensure that such measures do not amplify or trigger the materialisation of the accumulated vulnerabilities in the residential real estate sector in Denmark.


title: Recommendation of the European Systemic Risk Board of 27 June 2019 on medium-term vulnerabilities in the residential real estate sector in Finland (ESRB/2019/8)2019/C 366/05

text:
               30.10.2019

               EN

               Official Journal of the European Union

               C 366/29

      RECOMMENDATION OF THE EUROPEAN SYSTEMIC RISK BOARD
      of 27 June 2019
      on medium-term vulnerabilities in the residential real estate sector in Finland
      (ESRB/2019/8)
      (2019/C 366/05)
      THE GENERAL BOARD OF THE EUROPEAN SYSTEMIC RISK BOARD,
      Having regard to the Treaty on the Functioning of the European Union,
      Having regard to Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (1), and in particular Articles 3, 16, 17 and 18 thereof,
      Whereas:

                  (1)

                  The real estate sector plays an important role in the economy and its developments may have a material influence on the financial system. Past financial crises have demonstrated that unsustainable developments in real estate markets may have severe repercussions on the stability of the financial system and of the economy as a whole, which may also lead to negative cross-border spillovers. Adverse real estate market developments in some Member States have, in the past, resulted in large credit losses and/or had a negative impact on the real economy. Such effects reflect the close interplay between the real estate sector, funding providers and other economic sectors. Furthermore, the strong feedback loops between the financial system and the real economy reinforce any negative developments.

                  (2)

                  These links are important because they mean that risks originating in the real estate sector may have a systemic impact that is procyclical in nature. Financial system vulnerabilities tend to accumulate during the upswing phase of the real estate cycle. The perceived lower risks of, and easier access to, funding may contribute to a rapid expansion of credit and investment, together with an increased demand for real estate, which puts upward pressure on property prices. Since the resulting higher collateral values further favour the demand for, and supply of, credit, these self-reinforcing dynamics may result in potential systemic consequences. Conversely, during the downturn phase of the real estate cycle, tighter credit conditions, higher risk aversion and downward pressure on real estate prices may adversely affect the resilience of borrowers and lenders, thereby weakening economic conditions.

                  (3)

                  Vulnerabilities relating to residential real estate can be a source of systemic risk and they may affect financial stability both directly and indirectly. Direct effects are credit losses on mortgage portfolios due to adverse economic or financial conditions and simultaneous negative developments in the residential real estate market. Indirect effects could be related to adjustments in household consumption, leading to further consequences for the real economy and financial stability.

                  (4)

                  As stated in recital 4 of Recommendation ESRB/2013/1 (2), the ultimate objective of macroprudential policy is to contribute to the safeguard of the stability of the financial system as a whole, including by strengthening the resilience of the financial system and decreasing the build-up of systemic risks, thereby ensuring a sustainable contribution of the financial sector to economic growth.

                  (5)

                  To this end, macroprudential authorities may use one or more of the capital-based macroprudential measures set out in Directive 2013/36/EU of the European Parliament and of the Council (3) and Regulation (EU) No 575/2013 of the European Parliament and of the Council (4), and/or borrower-based macroprudential measures, which are exclusively based on national law, depending on the assessment of risks. While the capital-based measures are primarily aimed at increasing the resilience of the financial system, the borrower-based measures may be particularly suitable for preventing the further build-up of systemic risks.

                  (6)

                  In addition, Recommendation ESRB/2013/1 recommends that Member States establish a legal framework that permits the macroprudential authorities to have direct control or recommendation powers over the macroprudential instruments identified in that Recommendation.

                  (7)

                  In 2016, the European Systemic Risk Board (ESRB) conducted a Union-wide assessment of the vulnerabilities relating to residential real estate (5)
                     . This assessment enabled the ESRB to identify a number of medium-term vulnerabilities in several countries as sources of systemic risk to financial stability, which led to the issuance of warnings to eight countries, of which Finland was one (6).

                  (8)

                  In 2016 the main vulnerability identified in the residential real estate market in Finland was high and increasing household indebtedness, with a significant share of households being potentially vulnerable to adverse economic or financial conditions or adverse developments in that market.

                  (9)

                  The ESRB has recently concluded a systematic and forward-looking European Economic Area (EEA)-wide assessment of vulnerabilities relating to residential real estate (7).

                  (10)

                  As regards Finland, this recent assessment has revealed that household indebtedness is higher than it was in 2016. Recently, this increase has partly been accounted for by loans taken out by housing companies (8) and then repaid from the income of households and other investors holding shares in these companies. In addition, newly available evidence regarding lending standards for new mortgage loans supports previous evidence of the potential vulnerability of a significant share of households taking out new mortgage loans to adverse economic or financial conditions or adverse developments in the residential real estate market.

                  (11)

                  Since 2016, the Finnish national authorities have tightened or introduced several borrower- and capital-based measures: (i) in 2017 the Board of Finanssivalvonta (the Finnish Financial Supervisory Authority) introduced, pursuant to Article 458 of Regulation (EU) No 575/2013, an average risk weight floor of 15 % for housing loans for credit institutions that use the internal ratings-based approach; (ii) in 2018 a systemic risk buffer of between 1 % and 3 % was imposed on all credit institutions; (iii) in 2018 the limit that applies to the loan-to-value (LTV) ratio was tightened from 90 % to 85 %; and (iv) also in 2018, Finanssivalvonta issued recommendations concerning lending standards for new loans, which also applied to loans to housing companies. In addition, the tax deductibility of mortgage interest expenses was reduced, from 100 % in 2011 to 25 % in 2019.

                  (12)

                  Despite these recently introduced measures, and except for the limit that applies to the LTV ratio, other legally binding borrower-based measures, namely limits that apply to the debt-to-income (DTI) ratio, the debt-service-to-income (DSTI) ratio and, maturity limits, are still not available in Finland, even though such measures may be necessary in the medium term if vulnerabilities related to household indebtedness continue to increase. Activating the limits that apply to either the DTI ratio or the DSTI ratio, in combination with maturity limits, would increase the effectiveness of the existing macroprudential measures that are already in place. Furthermore, the LTV ratio is currently defined in a manner that allows assets other than real estate assets to be considered as collateral.

                  (13)

                  Therefore, the ESRB has concluded that the macroprudential measures that are in place or available in Finland are partially appropriate and partially sufficient to address the vulnerabilities related to household indebtedness in the medium term. Consequently, further policy action is required to address these vulnerabilities, which can be a source of systemic risk. The measures proposed in this Recommendation are aimed at complementing the existing macroprudential measures in Finland.

                  (14)

                  The purpose of this Recommendation is to recommend the inclusion in Finnish law of additional legally binding borrower-based measures, as well as the adoption of such measures to prevent the vulnerabilities related to household indebtedness from increasing.

                  (15)

                  This Recommendation is without prejudice to the monetary policy mandates of the central banks in the Union.

                  (16)

                  ESRB recommendations are published after the General Board has informed the Council of the European Union of its intention to do so and provided the Council with an opportunity to react, and after the addressees have been informed of the intention to publish,

            HAS ADOPTED THIS RECOMMENDATION:
      SECTION 1

         RECOMMENDATIONS

         Recommendation A — Legal framework for borrower-based measures

                  1.

                  It is recommended that Finland ensure that the existing legal framework for borrower-based measures includes at least the following legally-binding borrower-based measures:

                              a.

                              either limits that apply to the DTI ratio or limits that apply to the DSTI ratio;

                              b.

                              limits that apply to the LTV ratio; and

                              c.

                              maturity limits.

                  2.

                  It is recommended that Finland amend the definition of the LTV ratio in the existing legal framework for borrower-based measures.

         Recommendation B — Activation of income-related borrower-based measures

                  1.

                  It is recommended that, pending the amendment of the existing legal framework as referred to in Recommendation A, the Finnish national authorities entrusted with the activation of income-related borrower-based measures apply non-legally-binding borrower-based measures in order to prevent a significant or an increasing share of borrowers taking out new mortgage loans who might not be able to service their debt or maintain consumption following adverse economic or financial conditions or adverse developments in the residential real estate market.

                  2.

                  It is recommended that, once the existing legal framework has been amended as referred to in Recommendation A, the Finnish national authorities entrusted with the activation or calibration of income-related borrower-based measures activate or calibrate, respectively, legally binding income-related borrower-based measures to further address the objectives set out in sub-recommendation B(1).

            SECTION 2

         IMPLEMENTATION

      1.   Definitions

      For the purposes of this Recommendation the following definitions apply:

                  (a)

                  ‘borrower-based measures’ means macroprudential measures that target borrowers;

                  (b)

                  ‘direct control’ means a real and effective capacity to impose and modify, where necessary to achieve an ultimate or intermediate objective, macroprudential measures applicable to the financial institutions that are under the scope of action of the corresponding macroprudential authority;

                  (c)

                  ‘recommendation powers’ means the capacity to guide, by means of recommendations, the application of macroprudential instruments, where necessary to achieve an ultimate or intermediate objective;

                  (d)

                  ‘loan-to-value ratio’ (LTV ratio) means the sum of all loans or loan tranches secured by the borrower on the immovable property at the moment of loan origination relative to the value of the property at the moment of loan origination;

                  (e)

                  ‘legally binding borrower-based measures’ means borrower-based measures that are introduced through legally binding acts;

                  (f)

                  ‘debt-to-income ratio’ (DTI ratio) means the total debt of the borrower at the moment of loan origination relative to the borrower’s total annual disposable income at the moment of loan origination;

                  (g)

                  ‘debt-service’ means the combined interest and principal repayment on a borrower’s total debt over a given period (generally one year);

                  (h)

                  ‘debt-service-to-income ratio’ (DSTI ratio) means the annual total debt service relative to the borrower’s total annual disposable income at the moment of loan origination;

                  (i)

                  ‘maturity’ means the duration of the residential real estate loan contract expressed in years at the moment of loan origination;

                  (j)

                  ‘medium term’ means within a three-year horizon;

                  (k)

                  ‘income-related borrower-based measures’ means limits that apply to the DTI ratio and limits that apply to the DSTI ratio;

                  (l)

                  ‘macroprudential authority’ means a national macroprudential authority with the objectives, arrangements, powers, accountability requirements and other characteristics set out in Recommendation ESRB/2011/3 (9).

            2.   Criteria for implementation

                  1.

                  The following criteria apply to the implementation of this Recommendation:

                              (a)

                              due regard should be given to the principle of proportionality, taking into account the objective and content of Recommendation A and of Recommendation B;

                              (b)

                              Recommendation A must be implemented before sub-recommendation B(2) to ensure compliance with sub-recommendation B(2);

                              (c)

                              when activating income-related borrower-based measures under Recommendation B, their calibration and phasing-in should take into account the position of Finland in the economic and financial cycles, and any potential implications as regards the associated costs and benefits;

                              (d)

                              specific criteria for compliance with Recommendation A and with Recommendation B are set out in Annex I.

                  2.

                  The addressees of this Recommendation are requested to report to the ESRB and to the Council on the actions undertaken in response to this Recommendation, or adequately justify any inaction. The reports should as a minimum contain:

                              (a)

                              information on the substance and timeline of the actions undertaken;

                              (b)

                              an assessment of the vulnerabilities related to household indebtedness and lending standards for new mortgage loans, including the distribution of new mortgage loans according to their LTV, DTI and DSTI ratios, and maturities, with the relevant ratios being calculated in accordance with Annex IV to Recommendation ESRB/2016/14 of the European Systemic Risk Board (10), together with the functioning of the actions undertaken, having regard to the objectives of this Recommendation;

                              (c)

                              a detailed justification of any inaction or departure from this Recommendation, including any delays.

            3.   Timeline for the follow-up

      The addressees of this Recommendation are requested to report to the ESRB and to the Council on the actions taken in response to this Recommendation, or adequately justify any inaction, in compliance with the following timelines:

                  (a)

                     Recommendation A

                              (i)

                              By 31 October 2020, the addressee of Recommendation A is requested to submit to the ESRB and to the Council an interim report on the implementation of Recommendation A including at least a statement clarifying whether it is planned that Recommendation A be implemented and which body or bodies will be responsible for the decision to activate and implement the borrower-based measures set out in that Recommendation. The ESRB may inform the addressee of Recommendation A of its views on the interim report.

                              (ii)

                              By 31 March 2021, the addressee of Recommendation A is requested to submit to the ESRB and to the Council a final report on the implementation of Recommendation A.

                  (b)

                     Recommendation B

                  By 31 October 2020, and yearly thereafter until 31 October 2022, the addressees of Recommendation B are requested to deliver to the ESRB and to the Council a report on any actions taken with regard to implementing income-related borrower-based measures or any other available measures to address the vulnerabilities related to household indebtedness and lending standards for new mortgage loans in Finland. Where there is more than one body responsible for taking actions to address the vulnerabilities identified, one joint report should be submitted.

            4.   Monitoring and assessment

                  1.

                  The ESRB Secretariat will:

                              (a)

                              assist the addressees, ensuring the coordination of reporting, the provision of relevant templates and detailing, where necessary, the procedure and the timeline for the follow-up;

                              (b)

                              verify the follow-up by the addressees, provide assistance at their request, and submit follow-up reports to the General Board. Three assessments will be initiated as follows:

                                          (i)

                                          by 31 December 2020, regarding the implementation of Recommendation B;

                                          (ii)

                                          by 31 December 2021, regarding the implementation of Recommendations A and B; and

                                          (iii)

                                          by 31 December 2022, regarding the implementation of Recommendation B.

                  2.

                  The General Board will assess the actions and justifications reported by the addressees and, where appropriate, may decide that this Recommendation has not been followed and that an addressee has failed to provide adequate justification for its inaction.

         Done at Frankfurt am Main, 27 June 2019.

               Head of the ESRB Secretariat

               on behalf of the General Board of the ESRB

            Francesco MAZZAFERRO

         (1)  OJ L 331, 15.12.2010, p. 1.

         (2)  Recommendation ESRB/2013/1 of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (OJ C 170, 15.6.2013, p. 1).

         (3)  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).

         (4)  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).

         (5)  See ‘Vulnerabilities in the EU Residential Real Estate Sector’, ESRB, November 2016, available on the ESRB’s website at www.esrb.europa.eu.

         (6)  Warning ESRB/2016/08 of the European Systemic Risk Board of 22 September 2016 on medium-term vulnerabilities in the residential real estate sector of Finland (OJ C 31, 31.1.2017, p. 49).

         (7)  See ‘Vulnerabilities in the residential real estate sectors of EEA countries’, ESRB, 2019, available on the ESRB’s website at www.esrb.europa.eu.

         (8)  In Finnish: asunto-osakeyhtiö.

         (9)  Recommendation ESRB/2011/3 of the European Systemic Risk Board of 22 December 2011 on the macro-prudential mandate of national authorities (OJ C 41, 14.2.2012, p. 1).

         (10)  Recommendation ESRB/2016/14 of the European Systemic Risk Board of 31 October 2016 on closing real estate data gaps (OJ C 31, 31.1.2017, p. 1).

         ANNEX I

            SPECIFICATION OF COMPLIANCE CRITERIA APPLICABLE TO THE RECOMMENDATIONS

            Recommendation A — Legal framework for borrower-based measures

         The following compliance criteria are applicable to Recommendation A.

                     1.

                     The Finnish legal framework for borrower-based measures should ensure that:

                                 (a)

                                 the limits that apply to the debt-to-income (DTI) ratio and to the debt-service-to income (DSTI) ratio, as well as the maturity limits, are applicable to loans granted to all types of borrowers and by all types of lenders, in order to avoid circumvention of the limits by the use of loans to housing companies or other methods;

                                 (b)

                                 when calculating the loan-to value (LTV) ratio, only immoveable property can be considered as collateral;

                                 (c)

                                 the Finnish national authorities entrusted with the activation of borrower-based measures are able to activate legally-binding borrower-based measures in an effective and pre-emptive way and are provided with the necessary flexibility in order to design those measures based on the vulnerabilities identified.

                     2.

                     The amendments to the Finnish legal framework for borrower-based measures should be in force by no later than 1 July 2021.

            Recommendation B — Activation of income-related borrower-based measures

         The following compliance criterion is applicable to Recommendation B:

                     1.

                     In order to prevent a significant or an increasing share of borrowers taking out new mortgage loans who might not be able to service their debt or maintain consumption following adverse economic or financial conditions or adverse developments in the residential real estate market, the Finnish national authorities should use one or several income-related borrower-based measures in combination (e.g. limits to the LTV ratio in combination with limits to the DTI ratio, or to the DSTI ratio, and maturity limits), to ensure the effectiveness of the measures in place and to minimise any potential for their circumvention or for unintended consequences that could reduce their effectiveness and possibly create risks in other areas.

                     2.

                     Prior to activating income-related borrower-based measures, an assessment should be made of the position of Finland in the economic and financial cycles, in order to determine the appropriate calibration and phasing-in of such measures.

                     3.

                     After the activation of the income-related borrower-based measures, their further tightening or the activation of additional macroprudential measures may be needed to address the vulnerabilities identified in Finland; this will depend on the choice of the income-related borrower-based measures activated, on the initial calibration of those activated measures and on the results of the assessment of vulnerabilities.

                     4.

                     When activating or calibrating the income-related borrower-based measures the Finnish national authorities entrusted with the activation or calibration of income-related borrower-based measures should take into account all loans which are to be serviced by households from their income, regardless of the form of the loans (i.e. treating loans to housing companies as household debt).