Honourable Co-chairs, Honourable Members of the European Parliament.
We are approaching the end of 2022 and it is fair to say that this has been a challenging year. It began with EU economies recovering at record speed from the COVID-19 pandemic.
But since Russia’s invasion of Ukraine in February, the outlook has changed significantly.
We face a series of new economic, social and geopolitical challenges. And a great deal of risk and uncertainty.
Energy prices are high, and interest rates have risen to tackle inflation. People across Europe are struggling with rising living costs, especially lower-income households.
And companies are losing cost-competitiveness.
We are now seeing some weakening of price pressures, so inflation may have reached its peak.
Still, we expect economic activity to contract through the first quarter of 2023.
This is a critical time when it is vital for the EU to coordinate its economic policies effectively.
Our compass for doing so is the European Semester
This year’s Annual Sustainable Growth Survey sets out immediate priorities:
- secure our energy supplies
- ensure a fair distribution of costs of the crisis
- align fiscal and monetary policies to tackle inflation
First, we urgently need to rebalance our energy markets.
This means securing alternative sources of supply, reducing energy demand and addressing weaknesses in the EU’s electricity and gas markets.
This is where REPowerEU comes into play. Our aim is to diversify the EU's energy mix, help to accelerate the substitution of fossil fuels with renewable energy.
We hope to finalise the trilogue negotiations this week.
In the meantime, we are very aware that increases in energy prices and inflation imply a significant negative impact on the purchasing power of households and on production costs for companies.
Unfortunately, we cannot shield everyone from the economic impact of the war.
This brings me to the second priority: fairness in sharing the burden of costs caused by the crisis.
Here, the quality of fiscal support measures provided by Member States varies widely.
This year, under 30% of support measures have been well targeted, meaning that 70% of the measures are not targeted.
So, most measures are not focused on helping those who really need it and are not reducing energy demand, thus not helping to bring prices down.
For this reason, we invited governments to urgently improve the quality and targeting of their support measures. We suggested to create a two-tier model for a fairer system to use in the current crisis.
Eligible consumers would pay a subsidised energy price up to a certain level of consumption, after which the normal market rate would apply.
The third priority is to ensure consistency between fiscal and monetary policy.
After very expansionary fiscal policies in the period 2020 to 2022, this is not the time to provide further support. This would fuel inflation and create more risks in high-debt countries.
Instead, the fiscal stance should be broadly neutral.
We analysed this in the Opinions on the Draft Budgetary Plans of euro area Member States.
Overall, we see that investment is maintained, and that budgets are prudent in many cases - which is good news. However, there are a few countries where current expenditure is growing too fast.
Among countries with high debt, this is clearly the case for Belgium. And we see also some risks for Portugal.
For countries with medium or low debt, current expenditure is growing too fast in Austria, Lithuania, Germany, Estonia, Luxembourg, the Netherlands, Slovenia and Slovakia.
For all these countries, additional measures are needed.
We will adopt an opinion on Italy's plan in the coming days, given that the new Italian government only submitted its full plan on 24 November.
Latvia's plan was submitted on a ‘no policy change' basis.
We will come back to this once a new government submits its full plan.
We also looked at the development of macroeconomic imbalances. The economic slowdown and high inflation have increased vulnerabilities and risks.
Next spring, we will provide in-depth reviews for 17 Member States - 7 more than in the past year
As we tackle these priorities, we will not forget our long-term objectives. What we do now should be consistent with our goal of competitive sustainability.
This is exactly what the European Semester ensures - with its four pillars of environmental sustainability, fairness, productivity and economic stability.
We need to keep on track with reforms and investments, starting by implementing those agreed in the Recovery and Resilience Plans. In this regard, next year will be decisive. More than half of the milestones and targets are due by the end of 2023.
We will also need to conclude discussions on the economic governance framework, on which I had the pleasure to exchange views with many of you in plenary a couple of weeks ago.
Clarity on the future conduct of fiscal policy will be critical to ensure fiscal sustainability and sustainable growth.