Remarks by Executive Vice-President Dombrovskis at the ECOFIN press conference

Thank you, Minister. Good afternoon everyone.

Let me also start with the economic situation.

As the Minister already said, the economic recovery continues. We expect all EU countries to return to their 2019 GDP levels this year or next. Some have already done so.

However, there is still uncertainty related to the epidemiological situation. Some new risks are emerging and we are facing pre-crisis legacies too.

Several developments risk hampering the recovery – inflation, for example, in the euro area stood at 4.1% in October, a level never exceeded since the start of the data series in 1997.

Its causes are global: rising commodity and energy prices – particularly of natural gas – supply bottlenecks and release of pent-up demand as economies reopen.

Last month, the Commission presented a range of potential measures to offset the immediate impact of energy price increases, and to strengthen resilience against future shocks – and today, ministers had a debate on this issue.

At today’s ECOFIN we discussed several aspects relevant for finance ministers: immediate measures to support the most vulnerable.

Most of the elements that are now driving inflation appear to be transitory. We expect inflation to moderate gradually in 2022, but after a further increase in the coming months.

We will keep watching inflation developments closely, also for possible second-round effects, and we stand ready to adjust our policies if necessary. The Commission will update the projections on this in its Autumn 2021 Economic Forecast.

The crisis has also accentuated some well-known vulnerabilities – high public debt, for example, and other macroeconomic imbalances.

We should reflect on how our fiscal rules can help to lower the debt-to-GDP ratio, because this will determine how well we can respond to possible future shocks.

But we need to go about this in a smart way: in a gradual, sustained and growth-friendly way.

We should also promote high-quality public investment to address the massive needs related to the green and digital transitions.

All this calls for a thorough and open discussion on the future of our economic governance.

The ministers had a first discussion on this yesterday in the inclusive Eurogroup and today in ECOFIN, and we invite everyone to contribute to the ongoing public consultation so that we can build a broad-based consensus of views.

In the meantime, we will carry out regular fiscal and macroeconomic surveillance, using the European Semester as a primary tool for coordinating the EU’s economic, fiscal and employment policies.

The Commission welcomes the ministers’ conclusions today on the future of the European Semester.

We will take these conclusions into account when we present the Autumn Package later this month.

It will also clarify how the Semester interacts with implementing the Recovery and Resilience Facility.

This phase – putting the RRF into proper effect – has now started.

Council has now approved 22 national recovery and resilience plans, with €52.3 billion in pre-financing disbursed to 17 Member States.

The next payment requests, other than pre-financing, will be conditional on meeting milestones and targets set out in each plan.

First though, we need to agree operational arrangements with each Member State. These will identify the evidence needed to show that the different milestones and targets are met, and the process for monitoring each plan’s implementation.

While we expect to receive a few payment requests this year, most will only arrive in 2022.

Lastly, let me turn to the banking sector.

Europe’s banks have played an important role during the pandemic by lending to households and businesses.

This was in large part thanks to the major overhaul of banks’ regulatory and supervisory framework following the global financial and economic crisis.

As a previous step in 2019, we carried out some major reforms with the previous banking package.

Now we need to complete them – by implementing international standards to make the wider EU banking system more resilient and stable, based on the Basel III standards.

We are proposing some changes to the capital requirements rules as a way to prevent any underestimation of risk and strengthen banks’ resilience to economic shocks.

We are also proposing changes in three other areas: enforcement, sustainability and third-country branches.

These changes aim to keep our banks strong, modern, viable and competitive – because we depend on a strong and stable bank sector to fund jobs and sustainable growth. Thank you.

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