(Source: Council of the EU and European Council)
(check against delivery)
Thank you for inviting me to the Economic Dialogue. It is a pleasure to be with you again and I look forward to our exchange of views. Let me first congratulate you, Madame Chair, on your recent re-election and wish you every success.
In my introductory remarks, I will, as usual, report on Eurogroup’s activities and policy priorities.
I will start with a few words on the economic situation.
The outlook for the euro area economy remains favourable. Incoming data and forecasts tell us that the economic recovery is continuing – although there is some loss of momentum. Nonetheless prospects for 2022 and 2023 remain robust. The labour market also continues to improve with unemployment at its lowest level ever.
This is good news, but we need to recognise that there are headwinds and that we have to navigate amidst continued elevated levels of uncertainty.
Notwithstanding the fact that our economies have generally become increasingly successful in adjusting to the pandemic, the resurgence of infections and the return of tighter mobility restrictions since (late) autumn has weighed on growth.
Of course, we all hope that with the omicron variant, the coronavirus is finally transitioning from a pandemic to an endemic state.
But there have been negative surprises before, so we need to remain vigilant and allow for considerable latitude in the economic and fiscal policy response.
When we talk about the economic situation, we must speak about inflation, which has been increasing markedly since mid-2021.
It goes without saying that assessing the inflation outlook for the euro area is first and foremost the task of the ECB, and it does so with full independence.
Nevertheless, the inflation upswing is affecting growth and the purchasing power of citizens’ incomes. This is something finance ministers are naturally concerned about, which is why the Eurogroup is paying very close attention to recent and prospective inflation developments.
The narrative on inflation has also changed somewhat, as the factors that have been driving prices up, are taking longer to dissipate than was expected. We are talking primarily about energy prices, but also strong demand, supply bottlenecks and technical factors.
Meanwhile, inflation is affecting goods and services more or less across the board. However, as the ECB has been pointing out, there are, so far, no signs of significant second round effects stemming from wage increases, and inflation is expected to start decreasing this year and subsequently drop below the ECB’s 2% target in 2023.
Monetary policy cannot solve supply constraints, but we can be confident that the ECB will, as before, do what is necessary to deliver on its price stability mandate.
Member states, for their part, are taking or exploring measures to protect households and businesses from the negative impact of high energy prices.
This is something we have to factor into our economic analysis, and the geopolitical tensions of course also have to be taken into account in this context.
This brings me to the policy mix, a topic that features prominently on the Eurogroup’s agenda.
By now, it is widely recognised that the euro area policy response has been sizable, timely, well-coordinated and well-calibrated – also in comparison to other major economies.
Member states and European institutions, individually and collectively, have successfully mitigated the impact of the pandemic on jobs and incomes.
Looking ahead, we have to pursue a policy mix that supports the recovery, promotes investment, and safeguards debt sustainability. These objectives are mutually compatible, but we need to strike the right balance.
When the Eurogroup discussed euro area member states’ draft budgetary plans for 2022 last December, we agreed with the Commission that fiscal policy should be moderately supportive and remain agile for 2022.
There was also consensus that measures should pivot to become more targeted and specific towards vulnerable groups and viable firms. We are conscious of the need to raise investment levels across the euro area.
In this context, we also need to make maximum use of the unique opportunity provided by the NGEU and its Recovery and Resilience Facility to reform and invest in our economies.
This is crucial for succeeding in the green and digital transitions, and for sustainably lifting growth potential.
After all the effort last year that went into producing high quality Recovery and Resilience Plans, the focus is now squarely on implementation. The Eurogroup will contribute to this, notably through its thematic discussions, which follow the euro-area as well as country-specific recommendations.
Fiscal strategy for 2023
In 2023, the Stability and Growth Pact’s General Escape Clause will, in all likelihood, no longer apply, and we will return to a rules-based coordination of national fiscal policies.
It is important that euro area member states and European institutions develop a common understanding of what the fiscal strategy for 2023 should be. The crisis has clearly shown the value of coordination, and we should maintain a high level of coordination in the recovery.
In March, the Eurogroup will have a first exchange of views on fiscal policy guidance for 2023, partly on the basis of guidance that the Commission announced it would put forward by then.
It is good to have this debate early on, as member states need timely guidance for their budgetary plans. I cannot prejudge the Eurogroup discussion. Nevertheless, certain things can be said with confidence.
First, it is reasonable to assume that the level of fiscal support will be lower than what it is now. This is the logic of fiscal rules and makes sense when the recovery is in a more advanced stage.
Second, as the Commission observed in spring last year, country-specific circumstances will be taken into account.
Third, we will want to avoid cliff-edge effects stemming from abrupt or excessive fiscal consolidation. We have learned since the previous crisis that debt sustainability is not served by stifling growth and investment.
Needless to say that we will listen carefully to the advice and analysis of the Commission and the ECB.
I will now turn to a related, but separate topic: the review of the EU’s economic governance, which the Commission relaunched in October 2021.
The Eurogroup is a very interested stakeholder and is contributing to the debate, in close coordination with the Council Presidency, since economic governance applies to all EU member states.
The Eurogroup is focusing on the euro area dimension of economic governance. This includes the processes around draft budgetary plans and macroeconomic surveillance introduced by the “two-pack” legislation, as well as enforcement mechanisms embedded in the “six-pack”.
At this stage, it is still too early to draw conclusions. I am sure the Commission will make good use of the Eurogroup’s discussions when it is putting together its proposals.
The Eurogroup is also working on two other dossiers related to the further development of the EMU: the euro as a digital currency and the completion of the banking union.
A digital euro could unlock significant benefits for firms and citizens. It would provide them with easy access to a risk- and cost-free digital means of payment – digital sovereign money issued by the ECB.
The Eurogroup fully supports the work of the ECB and the Commission on the digital euro. This touches on several issues that go beyond the monetary realm, so it is important that member states and the European Parliament are closely involved.
In the Eurogroup, we are holding a series of dedicated discussions on specific aspects including 1) data privacy and links with other policy objectives such as the prevention of money laundering; 2) the implications for the financial landscape and for the use of cash.
Our discussions should help the institutions narrow down the design features of a possible digital euro.
Completing the banking union
This brings me to the final point I wanted to raise with you today, the completion of the banking union.
Banking Union is about improving crisis management, which includes the resolvability of smaller and midsized banks, levelling the playing field and better protecting depositors and taxpayers.
It is also about further weakening the sovereign-bank nexus by reducing banks’ sovereign exposures and by moving towards common deposit insurance.
A lot of work went into this last year and we made good progress in identifying what the issues are and exploring some possible ways forward. We were unfortunately not yet able to bring this together in a comprehensive and ambitious work plan.
There is however a window of opportunity – both politically and economically – that we have to seize to make headway within the current institutional cycle.
There is a shared commitment among member states to this project, and a realisation that the cost of inaction and postponing progress to the next crisis would simply be too high.
Let me stop here and thank you for your attention.