Paschal Donohoe: We are aware that difficult times could lie ahead

Wise choices in terms of fiscal policy is needed to avoid the premature withdrawal of supportive measures

Photo: EU Paschal Donohoe.

The Commission's winter economic forecast, presented  last week, directly binds the expectations for light at the end of the tunnel in the spring to the vaccine roll out rate. That is why the videoconference meeting of the Eurogroup on Monday started exactly with a snapshot of the grip concerning the sanitary crisis, on the loosening of which the dynamics of economic growth will further depend.

Dr. Mike Ryan and Dr. Bruce Aylward of the World Health Organisation, told financial ministers that a high level of uncertainty remains, especially with regard to the circulation of the virus and the emergence of new variants. They also highlighted the huge progress that has been made in terms of testing, treatment and vaccination since coronavirus emerged one year ago.

Paschal Donohoe, Eurogroup President said that the steady progress of the vaccination campaigns in particular raises the prospect of gradual change.

The commission's economic forecast is premised on a gradual opening up of the economy in the first half of the year, and an acceleration of growth in the second half of the year, he stressed.

The Eurogroup President recalled that the gradual recovery will be supported and reinforced by the joint Recovery Fund. The RRF, which will enter into force on the 18th of February, will play an important role in ensuring a sustained and robust economic recovery as opposed to just a temporary rebound.

“But the situation remains serious. The level of employment is clearly well below where we want it to be. The Eurogroup President underlined the need to continue protecting the citizens from the pandemic and for supportive economic policies to remain in place for as long as they are needed.

“There is an inherent risk of withdrawing support too early, as opposed to withdrawing it too late.”

In light of the uncertainty and challenge, there continues to be a great need to coordinate our monetary and our budgetary efforts, Paschal Donohoe emphasized.

From a Eurogroup perspective, it is important that we approach national budgetary preparations in a coordinated manner to help shape our policy decisions, particularly as the process of vaccination gathers steam and our recovery slowly begins, he outlined.

He said his aim is the Eurogroup to reach a common understanding on the appropriate budgetary stance by the summer “so that we can guide our budgetary discussions for next year”.

Noting that what happens to the economy also depends on the decisions on the rollout of vaccines, Paolo Gentiloni, EU Commissioner for Economy, accented on the importance to make a success of NextGenerationEU.

He reminded that the impact of NextGenerationEU is not factored into the Winter Forecast.  “Our simulation projects that we should have growth of 2% on average and stronger than 2% in the most affected countries.”

He also put in the forefront the need of wise choices in terms of fiscal policy, to avoid the premature withdrawal of supportive measures.

The Commission already decided last September that the General Escape Clause will remain activated throughout this year, so the question is, what about 2022, Commissioner Gentiloni asked.

He specified that Member States will need guidance on this front, since they will soon start preparing their budgets for 2022 and medium-term fiscal planning.

Commissioner Gentiloni said that in early March the Commission will provide guidance on how it intends to approach this year's spring economic policy package.

This will include preliminary fiscal guidance for the period ahead and the parameters that we will look at to decide on the General Escape Clause, the Commissioner detailed.

The second main topic on the meeting agenda was concentrated on the international role of the euro and the discussion took place on the basis of the Commission communication of 19 January on the European economic and financial system.

“The aim is to reduce our dependence on other currencies and to strengthen our autonomy in various situations. At the same time, an increased international use of our currency also implies potential trade-offs which we will continue to monitor,” Paschal Donohoe noted.

He explained that this discussion is not about rivalling other currencies, but it is instead about “increasing the resilience of our own currency and giving our firms and our citizens greater choice and security”.

Ministers also took stock of the state of play with the solvency of the corporate sector.

The support that we have put in place at the national level and the framework we have agreed at the European level have all helped to keep many businesses afloat during lockdowns, the Eurogroup President said.

“This has been a success story, but we are aware that difficult times could lie ahead.”

He stated that as the recovery phase is kicking in, “we will move to a phase of more targeted measures with the difficult question of how to identify viable firms that will still need our support”. Our insolvency frameworks will need to be adaptable in order to minimise economic damage, he opined.


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