Euro area Finance Ministers will review the macroeconomic situation on Monday 23 May in light of the repercussions in Europe of the Russian invasion of Ukraine.
This discussion will be based on the spring economic forecasts presented by the European Commission on Monday. These show that the difficulties already observed - soaring energy prices, supply outstripping demand - continue to have a negative impact on economic activity despite the gradual removal of health restrictions.
The EU institution has thus significantly revised downwards its growth forecasts for 2022 from 4.0% of GDP in January to 2.7% (see EUROPE 12953/20). In contrast, inflation in the euro area has been revised upwards from 3.5 to 6.1% in 2022, before falling back to 2.7% in 2023.
On Monday, the Commission will have also presented its socio-economic policy recommendations for the EU27 Member States. And in the face of economic uncertainty due to the war in Ukraine, it is expected to recommend that the freeze on EU fiscal rules be maintained also in 2023.
“Everyone understands that next year will not be a normal year”, the European source said on Wednesday 18 May, not expecting any difficulties on this issue. Noting an ongoing reduction in public deficits and debt, the source called for flexible and well-calibrated fiscal strategies to respond to a changing situation.
In addition, the Commission is expected to assess the German and Portuguese budgets for 2022 presented after the parliamentary elections in Germany and Portugal.
ESM. The Eurogroup will consider the four candidates - Italy’s Marco Buti, Luxembourg’s Pierre Gramegna, the Netherlands’ Menno Snel, and Portugal’s João Leão - for the post of Managing Director of the European Stability Mechanism (ESM), the area’s permanent rescue fund, to replace Klaus Regling, whose second term of office ends in October (see EUROPE 12943/22).
The Ministers of the candidates’ home countries will present the candidate with their support, without the four personalities concerned participating in these discussions.
While its President, Paschal Donohoe, was hoping for a solution on Monday on a candidate for a formal appointment in June in Luxembourg, the Eurogroup is not expected to be able to achieve this next Monday.
With four candidates, we are in “uncharted territory”, the source said. According to this source, Mr Donohoe’s aim is to achieve a reduction in the number of candidates, in particular through the holding of indicative votes.
To be appointed, a candidate must receive more than 80% of the votes within the ESM Board, with each euro area country holding a weighted vote according to its share in the capital of the rescue fund.
Banking Union. In an enlarged format of the EU27, the Eurogroup will continue its work on drawing up a work programme to complete the banking union in the euro area, after the extraordinary meeting held at the beginning of May (see EUROPE 12944/23). The aim is to lay the groundwork for a political agreement in June.
The draft work programme that Mr Donohoe submitted to his counterparts sets out four areas of work: improving the management of a banking crisis, creating a European Deposit Insurance Scheme (EDIS), deepening the single banking market, and dealing with sovereign risk.
On Thursday, a second diplomatic source said there had been little change in the traditional positions of risk-reducing countries and risk-sharing States.
Germany does not want to commit itself to a mutualisation of risks through the future EDIS system, whereas the Mediterranean countries are very much in favour of it. Italy does not want the introduction of a sovereign debt exposure risk for its banks. Countries such as Belgium, which host subsidiaries of large groups on their territory, require guarantees for the management of intra-group liquidity in the event of bank failure.
See Mr Donohoe’s draft work programme: https://aeur.eu/f/1G6 (Original version in French by Mathieu Bion)