The Way Forward for the EU Economic Governance

Dear Commissioner Gentiloni, distinguished speakers, ladies and gentlemen,

I would like to warmly welcome all speakers and viewers who join this event, which is the result of a fruitful cooperation between the DG ECFIN of the European Commission and the European Economic and Social Committee. Thank you, dear Commissioner for our joint work.

I am honoured to be with you and to represent the European Economic and Social Committee – the bridge between EU institutions and Europe's organised civil society. Our views represent the joint views of employers, workers and civil society at large. The asset of our opinions is to provide the broadest possible consensus for politicians to base their decisions on.  And this is a must when it comes to deciding on the way forward for the EU's economic governance framework.

The timeliness and importance of this debate cannot be overstated. It has been two years since Europe and the world was hit by the COVID-19 pandemic, with far-reaching economic and social consequences, as we all know.

There are now promising signs of a recovery. In its Winter 2022 Economic Forecast, the Commission offered good news as it affirmed that the EU as a whole reached its pre-pandemic level of GDP in the third quarter of 2021 and all Member States are projected to have passed this milestone by the end of 2022. In fact, the EU economy grew by 5.3% in 2021, and it is projected to expand by 4% in 2022 and 2.8% in 2023.

These are undoubtedly good news but it does not change the fact that Europe has just faced its biggest crisis in peacetime, many effects of which will not easily disappear. The economic down-turn caused by the COVID-19 pandemic as well as the expenditure measures to contain the economic and social fallout had a strong impact on the state of public finances in the Member States.

The EU’s government deficit-to-GDP ratio increased from -0.5% in 2019 to -6.9% in 2020, while this ratio increased in the euro area from -0.6% to -7.2%.

In parallel, the government debt-to-GDP ratio increased from 77.2% at the end of 2019 to 90.1% at the end of 2020, while in the euro area it increased from 83.6% to 97.3%. Both areas saw the sharpest year on year increase in debt as well as the highest level recorded in the available time series.

It is thanks to the activation of the general escape clause of the Stability and Growth Pact that the EU and its Member States had the possibility to support their economies and protect European businesses and citizens.

However, the escape clause is set to be deactivated as of 2023 and the question is now: to what fiscal rules do we return, and will they set the Member States on the path to sustainable public finances? 

Returning to a strict implementation of the pre-pandemic European fiscal framework in 2023 would require extreme fiscal adjustments and would not allow for much investments and spending for the European public good.

The biggest challenge for the EU now is to ensure a balanced recovery throughout Europe while laying down a path towards a resilient and sustainable future. In this context, I would like to emphasise that the revision of the EU fiscal framework is not only crucial to stabilise the economy in the medium term, but also to finance the digital and ecological transitions of our economies and societies, while ensuring that they are just and leave nobody behind.

The key words for the Europe after the COVID-19 crisis need to be green, digital, inclusive and resilient. The green and digital transitions will require enormous investments. It is estimated that the EU’s commitment to the twin transitions, enshrined in the EU Green Deal and the EU digital strategy, will require additional annual private and public investment of about EUR 650 billion over the next decade.

Thus, we need an economic governance framework that can on the one hand, help the Member States efficiently coordinate their economic policies, effectively address macroeconomic imbalances and ensure sound public finances, while on the other hand, enable them to improve the quality and composition of their public investments to make available the necessary financial resources to support a sustainable and inclusive growth.

It is clear that both the recovery and the challenge of the environmental and digital transitions put further emphasis on the need to revise the economic governance rules of the EU.

These rules have already been to some extend improved in the aftermath of the 2008-9 financial crisis, to ensure sound public finances of the all the countries of the European Union. However, the work is far from finished and it is now time to see how to continue this work.

The EESC therefore welcomed that the Commission re-launched the consultation on the review of the economic governance framework last October. We are eager to contribute to the renewed discussion and we are pleased to do so at the occasion of this conference as well.

Instead of a "return to normal", we advocate for a "turn" to a revised and rebalanced, prosperity-oriented economic governance framework, which gives equal weight to a range of key policy objectives, such as sustainable and inclusive growth, full employment and decent work, a competitive social market economy and stable public finances. Such a framework should avoid pro-cyclicality, asymmetric effects in the Member States and lead to a more prosperous, resilient and competitive EU economy.

During the second panel, Ms Dominika Biegon, who was the rapporteur of an EESC opinion on this topic, will introduce in detail what we, the EESC, propose as key elements of such a revised economic governance framework. Nevertheless, I would like to highlight one important aspect: to support an inclusive European economy, the economic governance framework must also be inclusive.

The involvement of all key stakeholders – including civil society organisations – in fiscal policy is crucial to ensure the transparency and accountability of the framework and for establishing a balanced economic policy across the EU.

We are at a pivotal moment for Europe where every decision made can make or break Europe's future.

We have an unprecedented opportunity to not simply get back to the pre-crisis status quo but to foster the necessary reforms to help Europe face the digital and green transitions and to make Europe more sustainable, inclusive and resilient after this crisis than it was before. The economic governance framework has a crucial role to play in enabling Europe to achieve these goals.

Thank you very much for your attention and thank you for joining this important debate!

I look forward to a fruitful discussion!

 

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The Way Forward for the EU Economic Governance

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