Meeting in inclusive format, euro area leaders will hold their first summit since Croatia joined the Eurozone in early 2023 on Friday 24 March, with the participation of ECB President Christine Lagarde and Eurogroup President Paschal Donohoe. They will discuss the recent turmoil in the financial markets due to the failure of US banks and the setbacks of Crédit Suisse, as well as the reform of the European economic governance framework, as the European Commission is due to unveil its legislative proposal in early April, based on the guidelines set by the Ecofin Council (see EUROPE 13141/22).
“On Friday, we will discuss the current economic and financial situation and we will exchange views on the coordination of economic and budgetary policies”, said the President of the European Council, Charles Michel, in his letter of invitation to the EU27 sent on Tuesday 21 March.
According to several diplomatic sources, the leaders will be very interested to hear Ms Lagarde’s presentation on the ECB’s decisions to normalise monetary policy in response to excessive inflation and on the situation of the European banking sector. They also believe that the reactions of EU banking regulators to ensure the soundness of the banking sector have been adequate.
“Some leaders are asking for a real discussion on economic governance”, because they believe that the European Council is the appropriate political level for this discussion, noted a European source on Wednesday 22 March, for whom the debates of the EU27 on economic and financial issues “can be long, not because there is a crisis, but because they are generally thorough”.
According to a senior national diplomat, the discussion will not lead to concrete actions or “visible breakthroughs”, but it remains “essential” that EU leaders exchange views on these issues.
In his letter to euro area leaders reporting on the Eurogroup’s work, Mr Donohoe notes that, despite being resilient to shocks and uncertainty such as Russia’s armed aggression in Ukraine, the Eurozone economy continues to face a number of challenges, such as soaring prices.
The recent turmoil in financial markets requires our “vigilance”, he also stresses, while insisting on the robustness of the European banking sector, which “difficult” reforms have strengthened since the 2008 financial crisis (see EUROPE 13146/13). Moreover, the failures of US banks and the difficulties of Crédit Suisse remind us of the importance of “completing the banking union” in the euro area, starting with an improvement of European banking crisis management and deposit guarantee schemes, he adds (see EUROPE 12974/10).
The Commission is due to present a specific legislative initiative in the coming weeks.
On the budgetary front, the Eurogroup President notes the importance of reducing the temporary support to companies and households most affected by the surge in energy prices to avoid fuelling inflationary pressures. “We are therefore adjusting our policies to ensure that they are temporary, well targeted, and cost-efficient, and phased out unless another price shock occurs”, he says.
As for the budgetary guidelines for 2024, the Eurogroup considers that it is no longer time for massive support to the economy as a whole (see EUROPE 13140/3), but for fiscal prudence to ensure the sustainability of public debt in the medium term. “Fiscal policies in the future must support the green and digital transitions and improve the resilience of economies through investment and reform”, Donohoe said.
On Friday, the European Council will adopt several texts related to the ‘European Semester’ budgetary process, including the fiscal policy recommendation for the euro area in 2023, which calls for a broadly neutral fiscal stance (see EUROPE 13096/8).
See the letter from the President of the Eurogroup to the European Council: https://aeur.eu/f/5y5
See the draft conclusions of the European Council: https://aeur.eu/f/5yd (Original version in French by Mathieu Bion with the editorial staff)