MEPs and commissioners agreed on the certain negative consequences of the Russian invasion of Ukraine on the EU economy, during a debate on the 2022 annual growth report as part of the EU budget process on Wednesday 9 March.
Many concurred on the need for a heterodox European response, as was done at the outbreak of the Covid-19 pandemic, even if there were calls for a rapid return to budgetary rigour and the consolidation of public accounts.
For example, the two European Parliament rapporteurs, Helmut Geuking (EPP, Germany) for the Committee on Employment and Social Affairs and Irene Tinagli (S&D, Italy) for the Committee on Economic and Monetary, acknowledged that the Ukrainian crisis threatens the EU s economic recovery from the Omicron wave of the pandemic.
Mr Geuking focused on the need to tackle child and family poverty in Europe, stressing the importance of giving money directly to people.
Ms Tinagli expressed concern about three main risks: - inflation, which risks reducing demand and thus the recovery; - the upward dynamics of wages, which in turn may also cause inflation (‘second-round effect’); - the energy crisis with an asymmetric impact on the EU territory.
These risks are a sword of Damocles for the competitiveness of EU economic operators, especially industry, she analysed.
For the Italian Social Democrat, it is therefore important to postpone the deactivation of the general escape clause from EU fiscal rules in order to take into account the new realities. “This is not the time to go back to fiscal rules that were meant for completely different moments. They are not adequate to face the challenge that we have ahead and we need to support Member States in keeping people safe and confident for the future” she said.
In her view, a European response is needed, similar to the one formulated during the pandemic. The key factors that explain the EU success in managing the consequences of the Covid crisis were: “the right policy mix, balancing monetary policy, fiscal policies and effective coordination in the policy actions of Member States, and the introduction of new European tools that were adequate to the challenge that we faced”.
Two schools of thought
Many MEPs supported this policy line, mainly on the left of the political spectrum, such as the Spaniards Estrella Durá Ferrandis (S&D) and Ernest Urtasun (Greens/EFA). Portugal’s José Gusmão (The Left) said that the EU’s economic rules were “obsolete” and “counterproductive, and he called for a radical overhaul of the EU’s fiscal rules.
On behalf of the Renew Europe group, Spain’s Luis Garicano claimed that a similar EU response to the pandemic was needed, calling for the creation of a new European recovery fund. However, the problem remains the debt trajectories of some Member States which, he said, “are probably not sustainable ". “What we need to do is to condition access to this new European fund on a path of fiscal consolidation in the medium term that should be made sure to be followed by a new European fiscal agency”, he argued. This independent authority would ensure that access to this new fund is conditional on the monitoring of a “credible” fiscal consolidation path.
Markus Ferber of Germany, on behalf of the EPP, took the most orthodox position on the issue. “What is the European Semester? It is the central instrument for coordinating economic policy. In other words, the European Semester is about setting the right course for a stable budgetary policy and a competitive economy. It is about fiscal policy and economic policy”.
For the German MEP, care must be taken not to hand over the Member States and the EU to the financial markets, because “at the end of the day, it is the financial markets that decide to grant loans to the States, not us here in the European Parliament”.
A polyphonic Commission
On the Commission’s side, a certain divergence was expressed. While the European Commissioner for the Economy, Paolo Gentiloni, and the European Commissioner for Jobs and Social Rights, Nicolas Schmit, insisted on the importance of public investment and the need for solidarity to prevail, the Vice-President, Valdis Dombrovskis, was more vague.
In fact, the latter confirmed that current projections support the maintenance of the general escape clause until next year, with a possible review in the spring (see EUROPE 12902/18). But he insisted that fiscal support should remain moderately positive in 2022 and “ broadly neutral” in 2023.
High-debt Member States must start rebuilding their fiscal space, according to Mr Dombrovskis. To achieve this, budgetary attunement should be “gradual” and all Member States “should promote and protect public investment in their fiscal plans”. And to conclude: “This underscores the importance of improving the quality and composition of public finances”.
For its part, the French Presidency of the EU Council assured that this debate in the European Parliament would feed into the EU Council’s work on the reform of the European economic governance framework. The French Minister for Integration, Brigitte Klinkert, stressed the importance of the European summit in Versailles on Thursday 10 and Friday 11 March (see EUROPE 12907/2). (Original version in French by Pascal Hansens)