On Monday 8 November, the finance ministers of the euro area will hold a first general discussion on the evolution of the European economic governance framework after the European Commission relaunched the debate on the subject in mid-October (see EUROPE 12815/5).
The 19 euro area members should not go into the technical and numerical aspects of the EU’s fiscal rules, but rather, as the Commission advocates, focus first on “the economic goals” to be pursued in the reform, a senior EU source said on Thursday 4 November.
The frequent discussions that the Eurogroup will have on this subject between now and the summer, when the Commission is expected to present its proposals, will focus on aspects specific to the euro area, such as macroeconomic imbalances and macroeconomic crisis management. They should not result in a specific declaration by euro area countries.
The Eurogroup discussions will aim to give the Commission a good idea of the forces at work and the “level of ambition of the States” in terms of reforms, the source said, pointing to the fact that the Ecofin Council will take the lead in the Council in case of a legislative proposal.
In her view, some countries believe that fiscal rules have demonstrated their flexibility during the Covid-19 pandemic, while others want to go further. However, on the issue of public debt, which has increased further to cope with the health emergency, no one in the Council is arguing for a “blind” application of the debt reduction thresholds set out in the Stability and Growth Pact, she admitted.
Inflation. The Eurogroup will take stock of the economic situation in the euro area, where growth remains strong, albeit at a more moderate pace compared to the post-lockdown period. It will again address the impact of rising energy prices, and thus inflation, on economic recovery, although specific measures to be taken at European level are a matter for other Council configurations.
On Wednesday, ECB President Christine Lagarde said it was “highly unlikely” that key interest rates would be raised next year, with the current spike in inflation (4.1% in October in the eurozone) expected to ease off during 2022. “This process is going to be slower than expected”, the source noted, stressing the importance of carefully studying the second-round effects of inflation, especially on wages.
Banking Union. On a banking union in the euro area, it is now clear that the reform of the European Stability Mechanism (ESM), the euro area’s permanent rescue fund, will not be ratified in all nineteen countries in time for it to come into force in 2022. This is due to the ongoing legal proceedings in Germany in the context of an appeal against this reform to the Constitutional Court in Karlsruhe.
According to this source, no country has expressed political reservations about its ability to complete the ratification of the amended treaty establishing the ESM. Ireland, Italy and Finland are among the handful of countries that have yet to finalise their parliamentary ratification procedures.
With this reform agreed at the end of 2020 (see EUROPE 12613/4), the ESM will play an enhanced role in macroeconomic crisis management in the euro area and will be the lender of last resort of the Single Resolution Fund (SRF), the financial arm of the resolution component within the banking union.
The ECB and the Single Resolution Board (SRB), the European authority in charge of resolving large euro area banks in difficulty, will present their report on risk reduction in the financial sector to ministers. This analysis is “positive” as it shows an overall reduction in risk, although in some market segments support measures are in place, the source said. Any bank failure caused by the pandemic would already be visible, she said.
Digital euro. Monday will also see discussions on the ECB’s pilot project on the creation of a digital euro (see EUROPE 12762/17), which, if implemented, would require legislation at European level.
Euro area finance ministers will discuss the purpose of a digital currency. At subsequent Eurogroup meetings, they will discuss issues related to the creation of a digital euro, such as the protection of privacy or the impact of a digital currency on cash.
Finally, the Eurogroup will also be informed about the recent autumn meetings of the international financial organisations held in Washington. (Original version in French by Mathieu Bion)