Our economic growth forecast is revised downwards, and the inflation forecast upwards...Still, the EU economy is showing resilience. Growth will continue both this year and next, but more slowly than previously envisaged.
Russia's military aggression continues to send shockwaves across the world.
It has dramatically altered the geopolitical landscape.
It is dragging on economic activity, fuelling inflation and
disrupting supply chains. And it is heightening uncertainty in general,
which implies significant downside risks.
The EU is first in line among advanced economies to take a hit. This
is not only because of our proximity to Russia and Ukraine. It is also
because we depend heavily on Russian fossil fuels for our energy
supplies.
Russia's aggression poses new challenges, just as the EU was setting out on a path of strong growth after the pandemic.
As a result, our economic growth forecast is revised downwards, and the inflation forecast upwards.
Still, the EU economy is showing resilience.
Growth will continue both this year and next, but more slowly than previously envisaged.
People also have valid concerns about their rising living costs and ability to pay higher energy bills.
In this context, it is more urgent than ever for the EU to end its dependence on Russian fossil fuels.
Our response to this is the REPowerEU plan. It will diversify the EU's energy mix, moving away from Russian natural gas.
It will help to accelerate the substitution of fossil fuels with
renewable energy and give the EU a more reliable, secure and sustainable
energy supply.
At such a critical moment – Russia's aggression, the resulting
refugee flows, sharp rises in commodity prices – it is essential for the
EU and its Member States to coordinate economic policies.
Our compass for doing so is the European Semester, and today we presented our package at ECOFIN to finance ministers.
Its country-specific recommendations consider the risks and
implications of Russia's war against Ukraine to the economic outlook.
They cover the few reforms and investments that were missing from the
national recovery and resilience plans.
And they translate the REPowerEU objectives into reforms and investments for Member States.
We also update guidance on how fiscal policy should contribute to sustainable growth in these challenging circumstances.
Given Russia's aggression against Ukraine, heightened uncertainty and
elevated risks, we propose to maintain the general escape clause in
2023 and deactivate it as of 2024.
Keeping the general escape clause activated will provide Member States with room for manoeuvre, to react when necessary.
But this does not mean that fiscal rules are suspended.
In fact, EU countries should move towards prudent fiscal policies.
Since growth remains positive and inflation is high, a broad-based
fiscal impulse to the economy in 2023 does not appear to be warranted.
So higher expenditure for the green and digital transitions and
energy independence combined with strict control of current expenditure...
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