On Monday 15 July, the euro area finance ministers will adopt a new position on the fiscal stance appropriate for the euro area in 2025.
These discussions on the coordination of the fiscal policies of the twenty euro area countries are taking place at a time of transition towards the application of the revised Stability and Growth Pact starting January 2025. Contrary to the usual cycle of the ‘European Semester’ fiscal process, the Member States have not sent their stability and reform programmes to the European Commission, as they are in the process of drawing up, in accordance with the new European fiscal rules, multiannual macro-fiscal plans (between four and seven years) which they must send to the European level by 20 September.
At this stage, “there is not much to frame the preparation of those budgets”, said a European source on Thursday 11 July.
On Monday, the Chair of the ‘European Fiscal Board’ (EFB), Niels Thygesen, will inform ministers of the EFB’s recommendations for a “significant restrictive fiscal policy” for the euro area in 2025, primarily for the countries – Belgium, Greece, Spain, France and Italy – with the highest levels of public debt (see EUROPE 13445/12).
This source noted that this report, which “underlines the importance to rebuild buffers” in the budget, would “feed into the discussion” of the ministers, for whom the extent of the aggregate consolidation of public finances would depend on the number of Member States opting for long durations for their multiannual macro-fiscal plans.
In March, the Eurogroup recommended a slightly restrictive fiscal stance for the euro area (see EUROPE 13368/4).
As for the possibility that some countries might not meet the deadlines for preparing their macro-fiscal plans, such as France, where the outcome of the legislative elections remains unclear, this source pointed out that the Pact contains provisions for dealing with delays.
On Tuesday 16 July, the Ecofin Council is expected to ratify the formal opening of excessive deficit procedures for seven Member States: Belgium, France, Italy, Hungary, Malta, Poland and Slovakia (see EUROPE 13449/17).
Work Programme. On Monday, the Eurogroup will adopt its work programme for up to March 2025. Priorities will include the deepening of Capital Markets Union (CMU), including the removal of administrative barriers at national level, and a reflection on economic competitiveness.
ERM II. The ministers will also discuss the ERM II exchange rate mechanism with their Danish and Bulgarian counterparts. The Denmark and Bulgaria’s currencies are pegged to the euro at a central rate and are only allowed to fluctuate within a range of 15% above or below this central rate.
These discussions will take place in the light of the two convergence reports presented by the European Commission and the ECB at the end of June (see EUROPE 13440/18). Bulgaria, which joined the ERM II mechanism in July 2020 (see EUROPE 12525/4), is expected to be the next country to join the euro area. However, it does not yet meet the criterion of price stability.
The convergence reports will also be discussed at the Ecofin Council meeting (see other news).
Competitiveness. In an inclusive format, the Eurogroup will hold a discussion on the financing gap that would boost the euro area’s competitiveness, in the presence of the former Italian Prime Minister, Enrico Letta, author of a report on the internal market that raises the issue of financing the transition (see EUROPE 13393/3).
According to this European source, the questions asked will be as follows: - How can available public funding be used to optimum advantage? - In what areas should the European level play a greater role, and what funding would be appropriate? Expecting a “lively” debate, the source did not rule out some delegations reviving the idea of a joint loan. On the question of financing, the lowest common denominator between Member States is the importance of greater integration of capital markets. (Original version in French by Mathieu Bion with Émilie Vanderhulst)