The nineteen finance ministers of the euro area countries will take stock of the economic situation on Friday 11 September in Brdo pri Kranju (Slovenia). They will also discuss the impact of the Covid-19 pandemic on socio-economic convergence within the currency area and solvency of companies.
The Eurogroup will welcome the fact that the economic recovery is stronger than expected, thanks in particular to the vaccination campaigns against Covid-19. According to the Statistical Office of the EU, GDP growth was 2.2% in the euro area in the second quarter, after a fall of 0.3% in the first quarter.
The euro area should return to its pre-crisis level of wealth production “by the end of 2021”, a quarter earlier than envisaged by the Commission, noted a European source on Wednesday 8 September.
This improvement is also reflected in a surge in inflation, estimated at 3.0% for the month of August, which the ECB Governing Council will discuss on Thursday.
Nevertheless, vigilance remains necessary due to the continuing uncertainties related to the pandemic. While the euro area countries are already preparing their draft national budgets for 2022, the freeze on EU fiscal rules will remain in place until the end of 2022.
“It is too late to change the guidelines” around which governments are constructing their draft budgets, the source said.
By the end of 2021, the Commission will re-launch the discussion on the reform of the Stability and Growth Pact. The Eurogroup is prepared to get involved in this discussion in the hope that a German government will be in place soon after their parliamentary elections on 26 September. But it is too early to say which direction this discussion will go and whether it will be finalised when the general escape clause of the Pact is deactivated at the end of 2022.
“Today, we are at the stage of exchanging ideas. The practical work will start later, once the Commission has made proposals”, said a source in Bercy.
The Director of the ECDC, Andrea Ammon, and the Chair of the European Parliament's Committee on Economic and Monetary Affairs, Irene Tinagli, were invited to participate in the discussion.
Convergence. Ministers will also discuss the impact of the pandemic on convergence within the euro area in terms of income, business cycle alignment and structural considerations such as the robustness of public institutions.
This is important to establish the “legitimacy” of the single currency, the EU source said.
In a note serving as a basis for this discussion, the European Commission notes that convergence within the economic and monetary union is a long-term process. In its view, the Next Generation EU Recovery Plan is a key tool to tackle the risks of divergence between Member States that the pandemic is tending to accentuate. This is why the distribution of the financial resources of this plan benefits first and foremost the countries, such as Italy and Spain, which suffered the most at the beginning of the pandemic. And the implementation of the economic recovery strategy Next Generation EU is to drive, focusing on reforms and investments, will be “crucial” to boosting convergence, the Commission says.
See the Commission’s note: https://bit.ly/3l3qzEb
Other structural projects, such as the Banking Union and Capital Markets Union, are likely to foster convergence within the monetary union. Again, the progress expected on the Banking Union will depend on the time needed to form a German government, not to mention the French presidential elections in spring 2022.
Solvency. Finally, the Eurogroup will resume its discussions on solvency of companies, although the pandemic has not yet led to the wave of bankruptcies initially envisaged, even if these are real.
This is proof that the emergency support measures have “by and large been successful”, the EU source said. That said, “this is not the moment to declare victory”, the source added, advocating a transition to targeted support for solvent companies in difficulty. According to it, there is a consensus among ministers on the need to phase out the emergency measures introduced at the outbreak of the pandemic in spring 2020.
Digital euro. We should note that the ECB will present to Ministers its decision to conduct a feasibility study on the creation of a digital euro by 2026 (see EUROPE 12762/17). (Original version in French by Mathieu Bion)