Eurogroup statement on the euro area fiscal stance for 2024

The euro area economy has proven its resilience, recovering significantly from two consecutive and significant exogenous shocks stemming from the Covid-19 pandemic and Russia’s war of aggression against Ukraine. Growth in 2022 was better than expected, supported by a swift, strong and coordinated policy response across the euro area, reflecting the discussions at the Eurogroup. After slowing down this year, growth in 2024 is expected to improve as inflation pressures recede. However, while uncertainty surrounding the economic outlook has diminished, it remains elevated, and risks are largely weighted to the downside. Euro area labour markets – a source of strength to date – are set to continue to show low unemployment and high activity rates. Despite declining, inflation in the euro area remains a key concern, displaying divergences between Member States. Headline inflation is falling gradually, with core inflation more persistent. We will continue to monitor key determinants, particularly margins and wage developments. It is essential that inflation falls further and that inflation expectations remain well anchored. The Eurogroup remains concerned about the impact of inflation on the euro area economy and its consequences for our citizens and businesses.

Over the period 2020-2022 the fiscal stance in the euro area was expansionary to address the external shocks and to protect the vulnerable in our societies. At the same time, these policies have placed an additional burden on the public finances. While consolidation has already started, the effect of persistent inflation and higher borrowing costs will need to be addressed to reduce deficit and debt ratios over time.

In light of this, a strategy of determined, gradual and realistic fiscal consolidation is warranted, to strengthen fiscal sustainability, to rebuild fiscal buffers, to deliver higher sustainable growth, to boost the euro area’s resilience to future challenges including intergenerational equity. At the same time, implementing structural reforms as well as safeguarding and increasing investment, through both public and private sources and the Recovery and Resilience Facility and other EU mechanisms remains an essential goal, in particular given common priorities such as the green and digital transitions and defence capabilities.

On 16 June, the Council agreed on country-specific fiscal recommendations for 2023 and 2024, which include differentiated fiscal effort recommendations. Absent renewed energy price shocks, we will in the euro area strive to wind down energy support measures, using the related savings to reduce government deficits, as soon as possible in 2023 and 2024. According to Commission estimates, for most euro area Member States, this is expected to be enough to deliver on the fiscal recommendations. In line with previous Eurogroup statements, we will avoid permanent deficit-increasing measures to facilitate lasting deficit and debt reduction. We will achieve the necessary overall restrictive fiscal stance in the euro area for 2024, by the implementation of the fiscal recommendations by all euro area Member States.

The Eurogroup will continue to closely monitor economic and fiscal developments regularly and adjust the policy advice as needed, including adapting it to economic circumstances. An important element of policy coordination is the revised fiscal governance framework, where work is being taken forward with a view to concluding legislative work in 2023. In this context, Eurogroup will review the budgetary policies of euro area members in December, informed by the Commission opinions on the draft budgetary plans for 2024.