On Monday 11 July, the euro area European Finance Ministers will take stock of the macroeconomic situation marked by record inflation exacerbated by the surge in energy prices due to the Russian invasion of Ukraine, a slowdown in growth and an increase in the financing conditions of Member States.
All financial organisations confirm that inflation and growth forecasts are “getting worse” due to the materialisation of risks that we did not foresee only a few months ago, a European source said on Wednesday 6 July.
On Monday, the IMF will unveil its macroeconomic recommendations for the euro area.
As announced by its President, Paschal Donohoe, in his letter to euro area leaders (see EUROPE 12976/22), the Eurogroup will update its budgetary strategy for next year in preparation for the national Draft Budgetary Plan for 2023, when the quantitative targets of the Stability and Growth Pact will still not be implemented.
The Chairman of the European Fiscal Board, Niels Thygesen, will explain to the Ministers why, even in a very uncertain macroeconomic context, the committee recommends deactivating the general escape clause of the Pact at the end of 2022 (see EUROPE 12978/29). The experts also advocate a shift from a broadly neutral to a moderately restrictive budgetary orientation, with budgetary support to be further targeted at those social groups and businesses most affected by the energy and health crises.
The time has come to phase out the all-out fiscal stimulus while boosting investment in climate and digital transitions, according to the EU source, which advocates “flexible” fiscal policies to cope with the current uncertainty.
According to this European diplomat, setting a budgetary orientation at the euro area level is not very useful. The diplomat suggests focusing on the “composition of national public finances”, in particular on energy investments.
Digital Euro. The Eurogroup will also be asked to guide the ECB’s work on the impact of the digital euro on financial services, in particular to ensure that this future central bank currency is not used for savings purposes in competition with the banking sector.
The aim is also to establish the most appropriate arrangements for the digital euro to coexist with cash, as the level of use of electronic payments differs greatly from one country to another and between different population groups.
Croatia. The Eurogroup will briefly review the introduction of the euro in Croatia starting January 2023. The following day, the Ecofin Council is expected to endorse the legislative texts that will allow a 20th country to join the euro area, including the text that will definitively fix the exchange rate between the kuna and the euro (see EUROPE 12982/29).
ESM. Finally, although not officially on the agenda, the appointment of Klaus Regling’s replacement as Head of the European Stability Mechanism (ESM), the euro area’s permanent rescue fund, will be further discussed.
It would be “preferable” for an agreement to be reached in order to promote a smooth transition, the EU source said.
Three candidates - Italy’s Marco Buti, Luxembourg’s Pierre Gramegna, and Portugal’s João Leão - remain in the running. 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. (Original version in French by Mathieu Bion with Camille-Cerise Gessant)