Eurogroup statement on the fiscal guidance for 2024

The euro area economy has recovered strongly following the pandemic and has weathered the consequences of Russia’s war of aggression against Ukraine, in particular regarding the energy price shock.

The economy entered 2023 on a healthier footing than previously expected despite high inflation. Energy prices have decreased significantly compared to the peak of last summer, even though they are still high by historical standards. Headline inflation appears to have peaked but is set to remain elevated for some time, with core inflation still moving upwards. Labour markets are performing strongly, with the unemployment rate at record low levels. Growth is nevertheless expected to remain subdued in 2023, and to pick-up gradually in 2024.

While uncertainty surrounding the outlook, notably in relation to geopolitical and energy related factors, remains elevated, risks to growth appear more balanced than previously. This reinforces the need for fiscal policy to remain agile going forward. In providing forward-looking orientations for our budgetary policy, we take note of the Commission Communication of 8 March 2023 on fiscal guidance for 2024.

We agree that over 2023-24, prudent fiscal policies should aim at ensuring medium-term debt sustainability, while raising potential growth in a sustainable manner and addressing the green and digital transitions and resilience objectives through investment and reforms. Fiscal policy will help to ensure the stability of the euro area economy and facilitate the effective transmission of monetary policy in a high inflation environment. In light of economic prospects and in a context of high inflation and tighter financing conditions, we reiterate that broad-based fiscal stimulus to aggregate demand is not warranted. We will therefore closely monitor the impact on aggregate demand and on the fiscal stance of additional energy support measures or the prolongation of existing ones, while also taking into account the uncertainty of the evolution of energy prices. We should avoid permanent deficit-increasing measures.

Given the strong spill-overs in energy markets and for the euro area economies, we will coordinate our measures to preserve the level playing field and the integrity of the single market. Our measures so far have mitigated the initial excessive impact of the energy price shock on businesses and consumers, however, the fiscal costs weigh on public finances. We are gradually transitioning from broad-based support to more targeted measures with improved design, efficiency and affordability. Absent renewed price shocks, we will continue to phase out energy support measures, which would also contribute to reducing government deficits. Looking forward, we are determined to continue our coordination efforts ahead of next winter. To the extent further efforts are needed, we will continue to protect the most vulnerable households and viable firms, while preserving incentives to limit energy consumption and increasing energy efficiency.

The only lasting solution to the energy crisis is to continue reducing the dependence on fossil fuels. In this context, we will focus on ensuring the timely implementation of reforms and investments, also in the framework of the Recovery and Resilience Facility and REPowerEU.

We will continue our discussions on fiscal policy coordination in the euro area.