Sat. Aug 13th, 2022

Brussesl, 11 July 2022

Macro-economic developments

The Eurogroup discussed macro-economic developments and policy challenges in the euro area in the current global context, with input from the International Monetary Fund, which presented the outcome of its interim visit, carried out in the context of its Article IV consultation of the euro area.

The IMF Article IV review of the euro area is a regular exercise during which the IMF reviews economic developments, consults the euro area policy makers and provides targeted policy advice.

The discussions in the Eurogroup were an opportunity to exchange views on current developments and emerging challenges. These exchanges and the Fund’s global perspective are particularly valuable at a time when international developments are generating uncertainty and policy challenges.

 

Budgetary situation in the euro area and fiscal policy orientations for 2023

Following up on the March Eurogroup statement on the fiscal guidance for 2023, ministers discussed the budgetary situation in the euro area and the fiscal policy orientations for 2023.

The Eurogroup adopted a statement on the fiscal policy orientations in view of the preparation of the national budgets for next year.

“We succeeded in getting to a common view on fiscal policy orientations for 2023. In particular, there is consensus that supporting overall demand is not warranted and the focus should be on protecting the most vulnerable. We will aim to preserve debt sustainability and long-term growth prospects, and avoid adding to inflationary pressures that would complicate monetary policy transmission. There are many schemes in place to cushion the impact of high energy prices, but we cannot collectively spend our way out of high energy prices – that is why our statement emphasises the importance of targeting support for the most vulnerable and investing in durable solutions in terms of renewables and energy efficiency. Most importantly, the statement is testament to the continued commitment by euro area finance ministers to closely coordinate budgetary policies to ensure a coherent approach that can respond to different situations across member states and adapt to changes over time.” – Paschal Donohoe, President of the Eurogroup

 

Digital euro

Based on input from the ECB and the Commission, ministers discussed the potential impacts of a digital euro on the financial system and the use of cash. This discussion followed the work plan on the digital euro, agreed by the Eurogroup at its meeting on 12 July 2021.

In this context, ministers expressed their views on potential financial stability implications of the digital euro, and on ensuring the digital euro’s attractiveness as a means of payment.

The Eurogroup agreed that the issuance of a digital euro should not impede the ECB’s ability to fulfil its mandate and should not impair financial stability. At the same time, we need to make sure that the digital euro can be an attractive means of payment and support innovation in a digitalised economy. A clear outcome of the discussion was that a digital euro would only complement cash, not replace it.

Paschal Donohoe, President of the Eurogroup

 

Euro area enlargement – Croatia

Ministers discussed the proposal for a Council regulation on the conversion rate between the Croatian kuna and the euro, in preparation for the decision by the Ecofin Council expected on 12 July.

 

Meeting information
  • Brussels
  • 11 July 2022
  • 15:00
Preparatory documents
Outcome documents
Press releases

Source – Eurogroup

 


Remarks by Paschal Donohoe following the Eurogroup meeting of 11 July 2022

Good evening everybody, we just had a very worthwhile Eurogroup meeting. We started our meeting with a discussion on the economic situation, which continues to be challenging due to the impact of Russia’s military aggression and all the global developments that arise from that. As always, our thoughts go out to all who are bearing the brunt of this war.

We begun by the IMF giving us an overview of their most recent euro area staff visit. Listening to the Fund, to the Commission and to the ECB, it is clear that there is a common diagnosis on the challenges we face in terms of growth slowdown, inflation, shielding the most vulnerable, and getting back to a sustainable recovery.

On the policies, the key part of our agenda today was to get to a common view on budget policy orientations for 2023. We achieved this, and we have issued a statement. You can read the statement in more detail and I want to outline a few points:

First, the focus of fiscal policy in 2023 reflects the economic outlook and the nature of our risks – in particular, as conditions currently stand, there is consensus that supporting overall demand is not warranted and that our focus should be on protecting the most vulnerable;

Second, we will aim to preserve debt sustainability and focus on how we can sustain growth in the long run. We will also avoid taking decisions that add to inflationary pressures and that complicate monetary policy transmission;

There are already many schemes in place to cushion the impact of high energy prices, but we cannot collectively spend our way out of high energy prices – that is why we focused on the importance of targeting support and investing in durable solutions in terms of renewables and energy efficiency;

And finally, the statement is testament to the continued commitment by euro area finance ministers to closely coordinate budgetary policies to ensure a coherent approach that can respond to different situations across member states and also to adapt to changes over time.

We also had a very useful input from the European Fiscal Board and Professor Thygesen helped very much with our discussion.

We then held a very constructive exchange of views on the digital euro. The ECB presented its recent work to us, on options to limit unwanted impacts on the financial sector, including outright limits or tools to disincentivise very large holdings of digital euros. We also discussed the issue of the continued use of physical cash alongside a digital euro.

The Eurogroup agreed that the issuance of a digital euro should not impede the ECB’s ability to fulfil its mandate and should not impair financial stability. At the same time, we need to make sure that the digital euro can be an attractive means of payment and support innovation in a digitalised economy. A clear outcome of our discussion was that a digital euro would only complement cash, it would not replace it. In October we will discuss the fourth topic of our work plan: the business models of the various public and private actors in the future digital ecosystem.

To round off the meeting, we briefly took stock on Croatia, since tomorrow the Council is set to adopt the regulation setting the conversion rate from the kuna to the euro. This is the last procedural step that is needed to allow Croatia to join the euro as of the 1st of January 2023. There was actually no need for significant discussion in our meeting – everything is going smoothly and I am very much looking forward to welcoming the Croatian Finance Minister as an observer to the Eurogroup meetings as from September.

I’ll say a few words about the ESM. We took the opportunity today to convene the ESM Board of Governors to select a successor to Klaus when he reaches the end of his term.

Italy decided to withdraw their excellent candidate and then we held a round of voting on the two remaining candidates, João Leão and Pierre Gramegna: they’re both excellent candidates, they both have a lot of support, but none of them reached the 80% threshold. We will return to this issue again in September, when we will aim to make further progress and put in place a new managing director in time for the end of Mr. Regling’s mandate.

So a wide variety of different topics discussed this evening. In particular, our agreement in a very constructive fashion on a budget statement for fiscal policy in the euro area for 2023. It’s an important development and we will return to the digital euro in October, by which point we will have made further progress on the new managing director of the ESM.

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Remarks by EU Commissioner Gentiloni at the Eurogroup press conference

Brussels, 11 July 2022

Thank you, good evening. As Paschal said, we had a broad convergence on the economic outlook, discussing the IMF assessment, then discussing with the European Fiscal Board.

So, the euro area economy has shown resilience to the shocks caused by the Russian invasion, thanks also to the momentum from the reopening of our economies post-COVID and the record-low unemployment.

At the same time, we all know that our economy is navigating troubled waters. The invasion of Ukraine has dented confidence, pushed inflation higher, created a situation of high uncertainty and is triggering global economic difficulties.

I will not enter into more detail on the outlook, but would invite you to join me on Thursday morning when I will present the Commission’s Summer Forecast.

In terms of fiscal guidance, we support the Eurogroup statement. As you know the Commission has called for Member States to shift away from broad-based stimulus towards more prudent policies – stability-oriented policies, if you prefer – in particular for high-debt Member States.

At the same time, Member States should stand ready to adapt their policies as needed to a rapidly evolving situation. And evolving, in many cases, with downside risks.

The extension of the General Escape Clause provides that agility. It is not a call for a fiscal free-for-all. You know by now our mantra: measures taken to mitigate the impact of the energy crisis should be targeted – to the most vulnerable households – and temporary. And they should also maintain incentives for energy efficiency.

We expect an increase in both the absorption of RRF funds and in nationally financed investment in 2023, and this is in line with our recommendation not to decrease but to expand investment for the green and digital transition and for energy security, while keeping a careful eye on current expenditure.

I also want to underline that there were many calls today for close coordination of policies in the period ahead and this is a call we respond to with the Eurogroup statement, and it is a call that the Commission welcomes and supports.

So if you take home three words from this evening, they should be, in my view, stability, coordination, agility.

There were also a number of calls today for a swift conclusion of the Economic Governance Review, given the importance of our fiscal rules as a policy anchor for Member States. And on this point I confirmed to ministers that the Commission will come forward with its orientations after the summer break.

We also, as the President has just said, had a useful exchange with the ECB on the ongoing work on a digital euro.

We focused in particular today on the need for the design of a digital euro to avoid adverse impacts on financial intermediation and stability, in line with the core principles on retail central bank digital currencies agreed by the G7.

On the subject of the digital euro, let me also underline that we all agree that it should not replace but complement cash. Responses to the Commission’s targeted consultation, in particular those by citizens, suggest that there is a widespread concern of the digital euro being the first step in phasing out cash. So let me be crystal clear that this is not the case.

And lastly, very happy to take today the penultimate procedural step concerning Croatia’s accession to the euro area, with the endorsement of the final conversion rate for the kuna.

This will be, as Paschal has just said, communicated tomorrow once the legal acts are adopted by the Council, clearing the way for Croatia to take this historical step on 1 January 2023.

Source – EU Commission