Good afternoon. As Valdis said, the recovery is underway with a strong rebound in the European Union, in spite of some downside risks.
We should be clear that this was not a given. It is a result of the policy response that we adopted at both national and European levels, with both fiscal and monetary policies.
At the same time, it was the result of the extraordinary success, after a difficult beginning, of the EU’s vaccination campaign.
But, as I have said many times, we are not only looking for a rebound. We must aim for growth that is both durable and sustainable. It is with this imperative in mind that we relaunch this review of our economic governance.
Changes are needed.
None of the issues we put on the table when we first launched this review have become irrelevant.
But some of the issues highlighted have become still more pressing. And new challenges are still more demanding.
Let me highlight four points.
First, investment. One of the legacies of the previous financial crisis was that gradually, public investment in the euro area fell to around zero in net terms. Investment bore the brunt of cuts. Fiscal policies were often far from growth-friendly.
Fast forward to today, and we estimate that the additional private and public investment needs related to the green and digital transitions will be nearly €650 billion per year until 2030.
The green transition alone accounts for €520 billion per year.
A large amount of the transformational investments we need must come from the private sector, but national governments will have a key role to play too. And that’s why a key question that must be considered in the coming months is how our framework can most effectively facilitate these public investments.
Reducing high public debt was of course already a challenge in the years preceding the pandemic, given the context of weak growth and very low inflation, as we highlighted in the Communication of February 2020.
Today, the strong counter-cyclical fiscal support I mentioned – estimated at almost 19% of GDP between 2020 and 2022 – has been essential to sustain our health systems and keep our workers employed. It was the right thing to do. But it has also led to higher debt levels. In the euro area, the average debt is 100%.
So another key issue we must collectively reflect upon is how our fiscal rules can ensure a gradual reduction of the debt-to-GDP ratio. Sound public finances are an essential ingredient for the European economy, but debt reduction needs to be both realistic and compatible with a sustainable growth strategy.
Third, the COVID-19 crisis has deepened inequalities and made some existing weaknesses worse.
I have already mentioned public debt, but private debt has also increased.
House prices have continued rising briskly and mortgage debt has risen significantly.
Current account deficits have widened in countries dependent on tourism, and the correction of current account surpluses has stalled.
So we must also reflect on how we can best address these challenges. That’s why the macroeconomic imbalances procedure is also up for review.
Lastly, a word on the European Semester, which is set to remain our reference framework for economic policy coordination in the EU. While the Semester is not formally part of the review process, it is undergoing significant changes thanks to the introduction of the Recovery and Resilience Facility (RRF).
We will set out these changes in detail next month. For today, I would just underline that the RRF has been successful in letting Member States take ownership of reforms and investments and encouraging the presentation of credible medium-term plans. That’s why we have added a question about the lessons we can draw from the design, governance and operation of this new instrument for the whole process of fiscal governance.
The evolution of the challenges we face makes it all the more essential that we have an effective economic governance framework.
Achieving this is our joint responsibility. It is crucial to the future of our Union.
I have highlighted four issues here, but all of the those that we put on the table last year remain pertinent, including the key issues of simplification and transparency; ownership; incentives for compliance; and, last but not least, how to take the euro area dimension into account more effectively than was the case in the past.
So I am looking forward to an open and frank discussion with stakeholders and Member States, with many contributions and no taboos.