Euro area finance ministers are aware that the surge in energy prices caused by the Russian invasion of Ukraine is having a negative impact on citizens’ incomes. However, “compensatory fiscal measures” are not a sustainable response to such a situation, they said in a statement adopted on Monday 11 July, favouring incentives for investment in energy transition over cross-cutting aid that affects the level of energy prices.
In view of the preparation of the national draft budget plan for 2023, the Eurogroup therefore recommends targeting any “temporary” aid to tackle the energy situation, such as “tax and excise duty reductions”, for the most vulnerable categories of the population.
On his arrival at the Eurogroup, the European Commissioner for the Economy, Paolo Gentiloni, had stressed that “no proposal” to cap energy prices was in preparation internally at the Commission.
Advocating fiscal agility in the face of macroeconomic uncertainty, the ministers consider that in 2023, supporting overall demand through fiscal policies “is not warranted”, without going so far as to say that the fiscal stance at the euro area level should be restrictive, contrary to the European Fiscal Board (see EUROPE 12978/29). Instead, they stress the importance of preserving the sustainability of public debts as refinancing costs on the markets will increase as the ECB normalises its monetary policy, with a first increase in its key rates announced for Thursday 21 July.
And the Eurogroup advocates structural reforms to stimulate the climate transition, making use of the Next Generation EU Recovery Plan.
Growth forecasts soon to be revised downwards
On his arrival at the Eurogroup, European Commission Vice-President Valdis Dombrovskis estimated that economic growth in the European Union would remain “somewhat resilient this year”, although “a downward revision” of the forecast for 2022 and “even more so for next year” was to be expected.
For Mr Gentiloni, the EU has not entered the adverse scenario imagined in the spring, according to which growth would flirt with negative territory in the event of a major disruption of Russian gas supplies (see EUROPE 12953/20). “But the risks of going down that road are increasing”, he acknowledged, calling the freezing of the Stability and Growth Pact also in 2023 “useful”.
The Commission will present its summer economic forecasts on Thursday 14 July. They are also expected to show an upward revision of inflation forecasts.
See the Eurogroup statement: https://aeur.eu/f/2l2 (Original version in French by Mathieu Bion)