“Prudent fiscal policies” in 2024 and gradual abolition of energy support measures, recommends for the countries of the eurozone European Commission in the framework of the European Semester.

The Commissioner for the Economy, Paolo Gentiloni, emphasized that the countries of the eurozone are invited to adopt coordinated prudent fiscal policies in 2024, starting with the gradual abolition of energy support measures. “This is key to both strengthening the sustainability of public finances and avoiding fueling inflationary pressures – and thus helping households regain their purchasing power,” the Italian commissioner said, noting, however, that governments have not they should be complacent as long as geopolitical tensions cloud the economic outlook with uncertainty.

At the same time, the countries of the eurozone are called upon to ensure high and lasting levels of investment, both public and private. As P. Gentiloni reminded, the Commission estimates the annual additional investment needs until 2030 for the green and digital transition at 650 billion euros. The implementation of the Recovery and Resilience Facility (RRF) and Cohesion Policy programs must therefore be accelerated. P. Gentiloni added that private investment is clearly the main driver of this transition and member states should remove obstacles to the development of private capital in the EU, ensuring that state aid remains targeted and does not distort the level playing field in the single market.

As far as the labor market is concerned, eurozone countries are called upon to support wage developments that mitigate the loss of workers’ purchasing power, taking into account the dynamics of competitiveness. As the Economy Commissioner explained, “wage growth has not kept pace with inflation and this has affected low-income households the most.”

The Commission assessed the coherence of EU countries’ 2024 budget plans, based on the Council’s July 2023 budgetary recommendations.

Overall, the Commission assesses that the budget plans of Greece, Cyprus, Estonia, Spain, Ireland, Slovenia and Lithuania “are in line with the Council’s budgetary recommendations”. The draft budgets of Austria, Germany, Italy, Luxembourg, Latvia, Malta, the Netherlands, Portugal and Slovakia are “not fully aligned with the Council’s recommendations”, while draft budgets of Belgium, Finland, of France and Croatia “are at risk of not being in line with the Council’s recommendations”.

The economic policy coordination of the European Semester for 2024 builds on the Commission’s recent autumn economic forecasts, which showed that the EU economy remains resilient against the multiple shocks suffered in recent years, but that it has lost growth momentum in 2023 in a context of high inflation and tighter financial conditions, while only a “moderate” upward trend is expected in 2024.

Broadly speaking, the Commission sets out the key priorities for 2024 with the aim of strengthening the EU’s competitiveness. The Union must tackle a number of major structural challenges, including low productivity, the green and digital transition and an aging population. To address these challenges, the Commission recommends removing barriers to private and public investment, supporting a favorable business environment and ensuring the development of skills needed for the green and digital transition. In this regard, the implementation of recovery and resilience plans and cohesion policy programs is necessary.

In addition, the Commission points out that in 2024, the general escape clause of the Stability and Growth Pact is to be deactivated. It therefore emphasizes that fiscal policy must support monetary policy to reduce inflation and ensure fiscal sustainability, while providing sufficient room for additional investment and supporting long-term growth.

Finally, with regard to the Early Warning Mechanism Report (AMR) which identifies possible macroeconomic imbalances in the Member States, the Commission concluded that Cyprus, Germany, Greece, France, Hungary, Italy, the Netherlands , Portugal, Romania, Spain and Sweden were experiencing imbalances or excessive imbalances. As a result, in-depth reviews will again be prepared for these countries during the 2023-2024 cycle. In terms of external imbalances, the Warning Mechanism report concludes that many countries face the prospect of larger external deficits than before energy prices rose. This is due to high dependence on energy imports and the resilience of domestic demand associated with loose fiscal policy.