The Eurogroup, in ‘euro area’ format, will discuss, on Friday 11 September in Berlin, the economic reforms and the appropriate budgetary policy during the Covid-19 pandemic, knowing that this is not the time for a standardisation of European fiscal rules. In an enlarged format, the 27 Finance Ministers of the European Union will also take stock of the banking union.
19 ministers will discuss the reforms to be put in place to revive their coronavirus-affected economies, in particular in the framework of the national recovery plans that each Member State will have to present in order to implement the European Recovery Plan (see EUROPE 12554/3).
“Membership in the euro area constitutes a framework to be taken into account when preparing the plans. [...] The Eurogroup will provide input on how to bring coherence between the Nineteen, so that the entirety [of the national plans, editor’s note] has more impact than the sum of its parts. This is what economic coordination is all about”, said a senior European official on Tuesday 8 September.
The discussion will focus on informing ministers about the experiences of their counterparts, including presentations by the Belgian, Portuguese and Slovak ministers. It will not lead to concrete action.
Stability and Growth Pact. In the budgetary area, ministers shared the view that “[now is] not the time to withdraw fiscal stimulus” and that there is “no choice except to try to keep the machinery of the economy alive until we return to normality”, the source continued.
At the end of March, the Commission had frozen the application of the Stability and Growth Pact in 2020 (see EUROPE 12452/1).
However, the elements characterising ‘a return to normality’ were not discussed in depth by the ministers. One of the prerequisites for such a situation to be challenged would be to be able to fully control the pandemic by means of a vaccine available to as many people as possible.
“We will go back to common rules”: the temporary framework on State Aid and the freezing of the Pact are not forever, said European Economic Commissioner Paolo Gentiloni at the Brussels Economic Forum 2020. In this regard, he continued, "two important decisions to take: one is the timing. It is crucial to avoid to go back to tightening rules too soon. Second: what kind of rules?”
On the second question, the European Commission has launched a reflection on the adaptation of European fiscal rules, particularly in the light of the experience of the pandemic.
Banking Union. Eurogroup President Paschal Donohoe has made the completion of banking union in the euro area one of the priorities of his mandate.
Ministers will resume work on this thorny dossier where they left off in June (see EUROPE 12505/16).
“There is broad agreement that progress needs to be made”, even if differences remain in terms of ambition and timing, said the official, for whom the pandemic and its economic consequences underline the importance of finalising this work.
The most immediate measure is to halt the reform of the European Stability Mechanism (ESM), the permanent rescue fund for the euro area, in order to give it a greater role in managing macroeconomic crises and, above all, to give it the function of a ‘backstop’ for the Single Resolution Fund (SRF), the financial arm of the resolution arm of the banking union.
Italy, where the reform of the ESM has been the subject of tense political debates that divide the governing coalition, is the main obstacle to finalising this work. The political difficulties are “significant” in that country, acknowledged this source, hoping that the Eurogroup will be able to inform stakeholders to give new impetus to the Italian public debate.
This senior official hoped that it will be possible to finalise the reform of the ESM by the end of 2020, in order to start national ratification procedures for the two intergovernmental treaties on which the ESM and the SRF are based. This would make it possible to make the safety net operational early in 2022 – 2 years before the deadline for the SRF to become operational – and to strengthen the political impetus for the development of a European deposit insurance scheme, the third and final pillar of the banking union.
ECB. If he receives a formal letter from the ECB, Mr Donohoe could inform ministers in Berlin of the launch of the procedure leading to the appointment, by the end of 2020, of a new member of the ECB’s Executive Board. (Original version in French by Mathieu Bion with Marion Fontana)