On Monday 17 January in Brussels, the euro area finance ministers will take stock of the economic situation, which is still marked by sustained growth, despite the uncertainty caused by the Omicron variant of the virus responsible for the Covid-19 pandemic.
Almost two years after the outbreak of the pandemic, they will analyse how Europe has weathered the ensuing economic crisis, including a comparison of the EU’s situation with that of the US.
The EU economy has recovered “ much faster” than after the 2008 financial crisis, an EU source said, on Thursday 13 January, stating that the EU had not necessarily reacted less than the US to support its economy, contrary to some criticism.
In a preparatory note, the European Commission states that the level of employment has remained broadly stable in the EU, while it has not yet returned to pre-pandemic levels in the US.
See the Commission’s note: https://bit.ly/3GsdQ7t
Two years were enough to bring the EU back to the 2019 GDP level thanks to vigorous action at national and European level on fiscal (freezing of the Stability and Growth Pact, Next Generation EU Recovery Plan, State aid), financial (recapitalisation, moratoria on loan repayments) and monetary (the ECB’s ‘PEPP’ ) issues, compared to the seven years it took after the 2008 financial crisis.
In the ministerial discussions, the surge in inflation and its impact on the economy will be addressed, while there are voices saying that this phenomenon may not be transitory.
In addition, the Eurogroup will address the issue of the vulnerability of European companies, with States now targeting their public aid to those sectors of activity most affected by the health measures.
The level of corporate insolvency remained “ surprisingly low”, the source said. The source advocated support for companies that are deemed “viable”, the difficulty being to distinguish between those that are and those that are not.
See the Commission’s specific note: https://bit.ly/3ttmeQi
Fiscal stance for 2022. On Monday, the Eurogroup will endorse the draft recommendation for a moderately supportive fiscal stance for 2022 at the euro area level, which will be endorsed by the Ecofin Council the following day (see EUROPE 12867/9).
This approach to setting an aggregate fiscal stance for the nineteen Euro Member States could be given greater importance by a revision of the European economic governance framework.
Stability and Growth Pact. The nineteen euro area ministers will discuss the euro area-specific aspects of the EU fiscal rules being revised, such as the presentation of their Draft Budgetary Plan for the following year and how to enforce the rules.
On this second point, this source noted that, for national experts, the implementation of the rules seems to depend more on national ownership than on the threat of financial sanctions, which, incidentally, have never been applied in the EU.
This discussion on the revision of the Stability Pact will continue on Monday in the enlarged format of the EU27. It is not expected to result in a written contribution from the Eurogroup to the discussion initiated by the Commission last October (see EUROPE 12815/5).
The next important meeting on this issue is scheduled “in March”, the source said.
The French Presidency of the EU Council wants to reach a common framework of reflection by the end of February (see EUROPE 12865/15).
Banking Union. With a renewed mandate from the December Summit (see EUROPE 12855/6), the Eurogroup President, Paschal Donohoe, said he is fully committed to developing a detailed work programme by the end of June to complete the Banking Union in the euro area.
This includes the creation of a European Deposit Insurance Scheme (EDIS), the third component of the banking union after the ‘supervision’ and ‘resolution’ components.
The fact that a German government is in place and able to decide creates an opportunity, Mr Donohoe said.
However, contrary to expectations, the nineteen euro area members did not ratify, in 2021, the reform of the European Stability Mechanism (ESM), the euro area’s permanent rescue fund. This reform aims in particular to convert the ESM into abackstop for the Single Resolution Fund, the financial arm of the resolution component of the Banking Union (see EUROPE 12613/1).
To date, fifteen countries have ratified the intergovernmental agreement reforming the ESM. In Germany, the procedure is blocked due to an appeal to the Constitutional Court in Karlsruhe. In Italy, difficulties have also arisen and are slowing down the process.
Mr Donohoe will remind ministers of “the importance of honouring political commitments” made, the source said, “confident” that the nineteen euro area members will go through with the ratification process of the ESM reform.
See the status of ratification of the ESM reform: https://bit.ly/3fnfxHm (Original version in French by Mathieu Bion)