The Eurogroup emphasizes that “the flexibility to adapt to the rapidly evolving situation will be maintained if necessary.”
“Broad fiscal stimulus to aggregate demand in 2023 is not justified, but the focus is on protecting vulnerable households and businesses,” the Eurogroup said in its statement on the draft national budgets for 2023.
At the same time, the Eurogroup emphasizes that “the flexibility to adapt to the rapidly evolving situation will be maintained if necessary.” Eurozone Finance Ministers agree that fiscal policies should aim to maintain debt sustainability as well as increase growth potential in a sustainable manner, thus also facilitating monetary policy’s task of ensuring a timely return of inflation to the ECB’s target, to 2%.
“Given the urgent need to react to the energy price and inflation shock, we have taken emergency measures that could be implemented easily and quickly. The direct fiscal cost of the measures in 2022 is estimated at 1.3% of GDP in the euro area. Many of these measures were broad-based and focused on energy prices, rather than targeted income measures. In 2023, the cost is projected at 0.9% of GDP in the euro area and could rise significantly if the measures already announced remain in place for the whole year,” the Eurogroup statement said.
In addition, Eurozone Finance Ministers stress that to mitigate the impact of high energy prices, they will work to ensure that measures are more effective, better coordinated and affordable. “In 2023 we will review our measures to ensure they are targeted and focused on vulnerable households and viable businesses that are temporarily exposed,” they said in their statement.
Finance Ministers also stress that a well-calibrated two-tier energy pricing model could be explored, according to which: businesses and households would receive a basic package of energy services at a subsidized price, while for energy consumption above a predetermined rate of energy consumption, market prices will apply.
“Similarly, our measures should further support the reduction of energy dependence on Russia and accelerate the decarbonisation of the economy. This requires maintaining the price signal to reduce energy consumption and incentivizing investment in energy efficiency, future energy infrastructure, including interconnections, storage and innovative renewable energy technologies. Given the strong spillover effects on energy markets and for euro area economies, we will coordinate our measures to maintain a level playing field and the integrity of the single market,” the statement said.
The Eurogroup stresses that all member states should gradually withdraw such measures as pressures on energy prices ease. “Many of the support measures currently in place are set to expire early next year. We will continue to coordinate our fiscal policy response in relation to energy support in the euro area and will further discuss a common approach to households, including considering appropriate ways to reduce support, at our upcoming meetings,” the finance ministers stress of the eurozone.
It is also recalled that in the fiscal guidelines for 2023 differentiation is made between member states according to the level of their public debt. “Member States with high levels of debt should pursue prudent fiscal policy, in particular by limiting nationally financed growth in primary current expenditure. Low/medium debt Member States should aim for a neutral fiscal policy stance,” the Eurogroup stresses and calls on Member States to take the necessary steps to ensure that the 2023 budget is consistent with the Council’s recommendations, taking into account the economic conditions. “As information on energy support measures is a key driver of this year’s review, we welcome the Commission’s intention to closely monitor developments and provide information to inform our upcoming discussions,” the Finance Ministers said.
The Eurogroup welcomes the fact that public investment spending is on an upward trend in the vast majority of Member States, helped in part by the Recovery and Resilience Facility (RRF), and recognizes the need to further expand investment spending in 2023 and beyond, in particular for supporting the green and digital transition as well as energy security, including through RePowerEU, once adopted. In addition, it emphasizes that there is a need to accelerate fiscal-structural reforms that will enhance potential growth, competitiveness and debt sustainability.
Finally, regarding the proposal to reform the EU’s economic governance framework, presented by the Commission on 9 November, the Eurogroup stresses: “Rapid progress on the revision is a priority to strengthen economic policy coordination. In the meantime, we welcome the Commission’s intention to provide budgetary guidance in March 2023 for 2024. This will be a key element for our regular budgetary planning and coordination efforts. Credible, realistic, gradual and growth-friendly debt reduction remains the key.”
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