24 November 2022

Speech by Commissioner Gentiloni at the European Policy Centre: Reforming EU economic governance for the coming decade

Thirty years ago, the Maastricht Treaty recognised the need for sound public finances and coordinated fiscal policies. The idea was to complement the single monetary policy and avoid economic spillover effects between countries.

It's a pleasure to be here today for the launch of this EPC series on the Maastricht Dialogues. 2022 marks thirty years since the signing of the Maastricht Treaty and twenty-five years since the creation of the Stability and Growth Pact.

Incidentally, it also marks twenty-five years since the establishment of the European Policy Centre, and I understand you are holding your Jubilee Conference next week. So let me take this opportunity to congratulate you on this milestone!

At such an important juncture for both the European and the global economy, the EPC's critical analyses and ideas will be needed more than ever.

Thirty years ago, the Maastricht Treaty recognised the need for sound public finances and coordinated fiscal policies. The idea was to complement the single monetary policy and avoid economic spillover effects between countries. And to benefit Europe's economy as a whole. These objectives have stayed valid over time.

But of course, a lot has changed since the ‘90s. Different contexts and circumstances required several revisions of our economic governance framework over the years, especially following the global financial crisis. After a slow recovery from that crisis, we were confronted with the severe economic shock caused by the pandemic.

Today, our economies face another serious test with Russia's continued aggression against Ukraine.

The combination of high energy prices, rising inflation, weak external demand and extraordinary uncertainty has damaged confidence and clouded our economic prospects.

After a strong first half of the year, the EU economy lost momentum in the third quarter and recent survey data point to a contraction this winter.

Unemployment remains at a historic low, but the outlook for next year has weakened significantly. The Autumn Economic Forecast I presented two weeks ago sees the EU economy growing by only 0.3% in 2023 before a progressive recovery to 1.6% in 2024.

Faced with soaring energy prices, Member States have stepped in to cushion the blow for firms and households. This will result in a fiscal impulse of around 2% of GDP for this year. Such a strong fiscal expansion risks adding to inflationary pressures, which is of course not what we want to happen.

So we need, collectively, to ensure three things:

• that measures are fiscally affordable;
• that they are targeted to the most vulnerable; and
• that they preserve the price signal and therefore incentives for energy savings.

We are not there yet.

We have calculated that around 70% of the measures adopted by Member States in 2022 are untargeted, meaning they benefit all, or a very large share of the population, and not only the vulnerable. And for the measures announced so far for 2023, the situation is still more extreme, with 90% of measures not targeted!

We are aware of course that targeting is not always easy, politically or technically. Still, we urgently need to work together with the Member States to improve our performance on this front – not least because we can expect energy prices to remain high for some time to come.

We also see large differences in the extent to which Member States have provided support. This points to the fact that not all countries have the same fiscal space to shield their economies from high energy prices. And it raises questions of maintaining a level playing field and preserving the integrity of the single market.

To avoid these pitfalls, address the current crisis and face the increasing global challenges, I believe we need both a coordinated policy response and new common European tools to support our competitiveness and limit the risk of fragmentation. And we are working on it. ..

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