“Check against delivery”
Good morning. It is a pleasure for me to take part in this joint ECFIN-EESC conference on the way forward for the EU’s economic governance framework.
This event forms part of our effort to engage in a wide-ranging and inclusive debate on the economic governance review with all stakeholders.
We have taken good note of the very useful European Parliament resolution of July 2021 that Ms Marques coordinated.
We have also paid close attention to the own-initiative opinion of the European Economic and Social Committee of March last year steered by Ms Biegon, as well as the discussions in the Committee of Regions.
And we have been engaging with Finance Ministers, in bilateral discussions and in the ECOFIN and Eurogroup meetings, and these exchanges will continue.
The online consultation that closed at the end of last year received a large number of contributions, which we are still analysing.
This conference as another opportunity for us to listen and learn from representatives of civil society.
[Economic outlook]
Thanks to our strong and coordinated policy response, the EU was able to cushion the pandemic’s socio-economic impact and rebound remarkably quickly.
However, downside risks to our economic outlook grew stronger in the last quarter of 2021 and weakened our momentum as we headed into the New Year: notably, the surge in COVID infections, high energy prices and continued supply-side disruptions.
Still, the fundamentals of our economy remain solid, which is why we expect that the EU economy will regain traction after the current winter slowdown. A continuously improving labour market, high household savings, still favourable financing conditions, and the full deployment of the Recovery and Resilience Facility are all projected to sustain a prolonged and robust expansionary phase.
Having considered all of these factors, on 10 February we revised slightly our growth forecast compared to our November projections: downwards for this year and upwards for 2023. GDP in the EU is now expected to increase by 4.0% in 2022 and 2.8% in 2023. But, uncertainty remains around us. And the violation of international law through Russian recognition of two separatist territories in Ukraine will strongly increase this uncertainty. So, huge challenges remain ahead of us:
First, challenges such as climate change and digitalisation and the resulting investment needs have become even more relevant with the COVID-19 crisis.
Second, the unprecedented economic downturn and policy response, which was necessary in a time of crisis, have led to an increase in government deficits and pushed public debt to historically high levels. But we must avoid an overly drastic adjustment that would risk choking growth and investment in the recovery period.
So, an ambitious challenge. We must achieve not merely a rebound, but durable, sustainable growth for the next decades, even beyond the end of the RRF in 2026.
[Investment]
The Recovery and Resilience Facility has been a game changer. As of today, the RRF has already disbursed € 56.5 billion in pre-financing to Member States and € 10 billion for the first payment to Spain. We have received further payment requests worth over € 33 billion from France, Italy, Greece and Portugal. And many more will come
Together with our traditional structural and investment funds, the RRF will help Member States to implement reforms and investments, but it will not be enough.
Our estimate is that the additional private and public investment needs related to the green and digital transitions will be around €650 billion per year until 2030.
We must reflect on the role of our economic governance framework to incentivise national investments and reforms in green and digital areas. Both public and private investments will be necessary to reach the goals of the twin transition.
Focusing on the quality of public finances could help to ensure debt sustainability while investing in key areas of our economies.
When we eventually begin to gradually consolidate our public finances, we must learn from the past. In the aftermath of the global financial crisis, public investment bore the brunt of consolidation and fell to zero in net terms. We must absolutely avoid repeating this mistake.
[Fiscal sustainability]
The investments needed to achieve our common objectives must be balanced against the need for fiscal sustainability.
The challenge will be to find the right balance between debt reduction and supporting growth, while placing growth at the front and centre of our framework of rules. Because it is clear that growth is essential to maintain debt sustainability.
Debt reduction can only be credible if it is done in a gradual, sustainable and growth-friendly way.
[Economic stabilisation and tackling imbalances]
Over the past decade – I should probably say over the past decades – EU fiscal policy has often displayed a pro-cyclical drift, and our rules have only partially mitigated this trend. That is, governments did not build fiscal buffers in good times and were then forced into austerity during economic recessions.
Going beyond the fiscal issues: After several years of gradual correction, macro-economic imbalances have revived during the pandemic. Private debt has increased again, alongside public debt, while for several Member States their external liabilities continue being sources of vulnerability. To respond to this, we also need to reflect on how the macroeconomic imbalances procedure can be improved, and how to promote structural reforms that increase competitiveness, or reduce debt biases.
[Simplification and enforcement]
Over the years, our fiscal rules have become too complex and hard to understand, due to the multiplication of sub rules and the reliance on variables that are subject to continuous revision. So simplifying the framework is also an essential objective of the review.
Simplifying the framework will also help to increase national ownership and support strong national fiscal frameworks. In this regard, we may look to the RRF for inspiration. This new instrument has a unique governance approach: on the one hand allowing Member States to take ownership of the reforms and investments presented in their recovery and resilience plans; on the other hand, ensuring that these plans all pull in the direction of commonly agreed European rules and policy priorities.
[Conclusion]
We intend to present our proposals on the way forward before the summer break, once we have listened to all stakeholders and digested their views. Our objective is to build a consensus on the new economic governance well in time for 2023. This will not be an easy task, but I am encouraged by the open minds I have encountered in all Member States. It is a unique opportunity to modernise our economic governance framework and ensure it is aligned with our ambition for strong, sustainable and inclusive growth in Europe.
In the meantime, next week we will put forward our fiscal policy guidance for 2023, focusing on how governments should pivot from crisis mode to recovery mode, and how to start a gradual reduction of high debt ratios, supporting in the meantime a durable and sustainable growth path.
Let me conclude by thanking DG ECFIN and the European Economic and Social Committee for organising this conference.
The involvement of civil society and social partners in the review is key, since the EU’s economic governance framework affects all sectors of the economy. I look forward to today’s event as an occasion to bridge different perspectives and to find new solutions together.
Thank you.
The post Speech by Commissioner Gentiloni at the European Economic and Social Committee: The way forward for EU economic governance first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.
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