Opinion of the European Economic and Social Committee on the ‘Recommendation for a Council Recommendation on the economic policy of the euro area’ (COM(2023) 903 final)
Date: 2024-01-17
Institutions: European Economic and Social Committee
Subjects: economic growth, economic reform, energy crisis, euro area, fiscal policy, investment promotion, macroeconomics, stability pact, structural adjustment, sustainable development








C_202402104EN.000101.fmx.xml












Official Journal of the European Union


EN
Series C













C/2024/2104


26.3.2024






Opinion of the European Economic and Social Committee on the ‘Recommendation for a Council Recommendation on the economic policy of the euro area’
         
(COM(2023) 903 final)
(C/2024/2104)







Rapporteur:



DIAMANTOUROS Konstantinos











Referral


European Commission, 21.12.2023




Legal basis


Article 304 of the Treaty on the Functioning of the European Union




Section responsible


Economic and Monetary Union and Economic and Social Cohesion




Adopted in section


18.12.2023




Adopted at plenary


17.1.2024




Plenary session No


584




Outcome of vote
(for/against/abstentions)


231/0/3




1.   Conclusions and recommendations









1.1.


The EESC welcomes the European Commission's euro area recommendations and broadly shares these and its assessment of the current economic situation.












1.2.


The EESC urges the European Central Bank (ECB) to adopt a prudential approach based on a dynamic and data-driven monetary policy to further bring inflation back down to the target and expresses its support for continued coordination of Member States' fiscal policy with the monetary policy of the ECB.












1.3.


The EESC supports the Commission's call for fiscal consolidation and urges the Member States to reach an agreement on the reform of the Stability and Growth Pact before the end of the year.












1.4.


The EESC reiterates its position that social partners and governments should negotiate and agree on national income pacts to reduce inflation without undermining investment and growth. It welcomes the European Commission's recommendation for Member States to, in accordance with national practices and while respecting the role of social partners, support wage developments that mitigate purchasing power losses, especially for low-income earners, taking due account of competitiveness dynamics and avoiding lasting divergences within the euro area.












1.5.


The EESC welcomes the launch of the EU talent pool and reiterates the importance of implementing the recommendations set out in the Employment and Social Developments in Europe Report: Addressing labour shortages and skills gaps in the EU.












1.6.


The EESC calls on Member States and the European Commission to continue their work on completing the Capital Markets Union to take away existing barriers for meeting the investment needs for just and inclusive green and digital transitions.












1.7.


The EESC stresses the importance of completing the Banking Union and establishing the missing third pillar, the European Deposit Insurance Scheme (EDIS).












1.8.


The EESC calls on the European Commission and the Member States to continue making progress on the electricity market reform and the Energy Union through legislation and investment in energy infrastructure and interconnections. These are vital steps towards lowering energy costs for households while improving the competitiveness of European businesses.












1.9.


The EESC believes that a European solution for strengthening the long-term competitiveness of European businesses which does not undermine the single market is crucial. Therefore, the EESC reiterates its support for the Strategic Technologies for Europe Platform and repeats its call for the Commission to establish common instruments to this end.




2.   General and specific comments









2.1.


The EESC recognises the recent decline of the headline inflation rate across the EU as a sign of the efficacy of the monetary tightening implemented by the ECB. However, the EESC is concerned about recent downward revisions of the growth outlook for the EU's economy in the European Commission's latest economic forecast and the impact of this economic deterioration on households and businesses. The downward revision of the EU's growth outlook is compounded by continued downside risks to the inflation outlook, notably through sustained geopolitical volatility in the Middle East, which may give rise to a new peak in headline inflation. Such a worrying development would see consumers suffer a further decline in spending power and an increase in unemployment levels. The EESC also takes note of the impact that the ECB's interest rate increases have on consumers and businesses, observing that the proportion of non-performing loans is starting to increase after falling to historic lows and recommends closely monitoring this emerging trend and its impact on the euro area's financial stability. Mindful of the risk of a further deterioration of the economic situation and highlighting its recent opinion Additional considerations on the Euro area economic policy 2023 (1), the EESC urges the ECB to adopt a prudential approach based on a dynamic and data-driven monetary policy to further bring inflation back down to the target while staying mindful of the balance between reducing persistently high inflation and avoiding a recession in times of economic uncertainty.












2.2.


In line with its aforementioned opinion (2), the EESC expresses its support for continued coordination of Member States' fiscal policy with the ECB's monetary policy in order to achieve an economic policy that is effectively able to tame inflation and achieve price stability by taking a coherent approach. Special attention should be paid to core inflation as the key measure of underlying inflation developments. The EESC notes with concern the nine Member States whose draft budgetary plans are not fully in line, and the four Member States whose draft budgetary plans risk not being in line with the Council's fiscal recommendations, as observed in the Commission Communication on the 2024 Draft Budgetary Plans (3). The EESC also notes the economic projections of the latest European Commission Autumn Economic Forecast (4), which foresee several Member States exceeding the 60 % debt-to-GDP limit as well as the 3 % deficit limit of the Stability and Growth Pact between 2023 and 2025. The EESC therefore supports the call for fiscal consolidation as expressed in the Council recommendation on the economic policy of the euro area (5) and stresses the importance of good allocation of public resources, in view of increasing strains on public finances, including the need for Member States to adopt coordinated and prudent fiscal policies to keep debt at low levels and to put debt ratios on a plausibly downward path. Several governments are facing serious fiscal constraints, like higher stock of public indebtedness that are compounded by increased borrowing costs and structural challenges such as the growing effects of ageing populations on public finances, a hike in defence expenditure, and investment in the green and digital transitions. Fiscal support should preferably be restricted to vulnerable people over providing subsidies to the general public. Considering this context, the EESC, highlighting its opinion on New economic governance rules fit for the future (6), urges the Member States to reach an agreement on the reform of the Stability and Growth Pact before the end of the year and on the concurrent deactivation of the general escape clause.












2.3.


The EESC expresses its concern over the cost-of-living crisis and its impact on vulnerable groups as the financial distress among households in the lowest income quartile at EU level rose to 29,1 % in September 2023. The EESC reiterates its position that the social partners and governments should negotiate and agree on national income pacts to reduce inflation without undermining investment and growth, and that these pacts should be accompanied by targeted public measures to support vulnerable sections of the population. It is encouraging that, in line with the EESC's position, the European Commission recommends for Member States to, in accordance with national practices and while respecting the role of social partners, support wage developments that mitigate purchasing power losses, especially for low-income earners, taking due account of competitiveness dynamics and avoiding lasting divergences within the euro area.












2.4.


The EESC shares the Commission's view that, in the long term, the euro area's competitiveness will be determined by its ability to increase productivity, in particular by increasing skills and innovation, but stresses the vital importance of just and inclusive green and digital transitions in this context. To realise the green and digital transitions, there is a severe need to promote reskilling and upskilling to reduce skill mismatches. The 2023 EIB Investment Survey indicates that 81 % of European firms experience a lack of availability of skilled staff as a long-term barrier to investment in the EU (7). In the context of the labour and skills shortage, the EESC therefore also welcomes the launch of the EU talent pool and reiterates the importance of rapidly implementing the recommendations set out in the Employment and Social Developments in Europe Report: Addressing labour shortages and skills gaps in the EU (8).












2.5.


ECB President Christine Lagarde recently indicated that the green and digital transitions require additional annual investment worth EUR 620 bn and EUR 125 bn respectively by 2030. The EESC highlights the importance of completing the Capital Markets Union (CMU) to overcome the limitations imposed by a fragmented European financial market, so that it can benefit consumers, investors and companies across the EU and raise the required funding for the green and digital transitions. This integration process should include the construction of a sufficiently large securitisation market. A genuine CMU would increase the supply of risk capital for high-growth firms and improve choices and returns for savers, augmenting jobs, growth and financial resilience.












2.6.


In view of the deteriorating economic situation and potential risks for macro-financial stability, the EESC stresses the importance of completing the Banking Union and establishing the missing third pillar, the European Deposit Insurance Scheme (EDIS), in order to optimise the ability of financial agents to use their lending potential to support customers across EU markets. The current lack of an EDIS means that access to capital markets very much depends on the fiscal situation of the country where they are located, creating unnecessary risks for Member States and their citizens.












2.7.


The EESC remains concerned over heightened energy prices in the EU in the medium term, which continue to affect households and is negatively affecting the competitiveness of European businesses. The International Energy Agency notes that policy actions and fiscal support implemented in recent years, including REPowerEU, have significantly boosted the deployment of renewable energy, saving European consumers EUR 100 bn during the 2012-2023 period and lowering wholesale electricity prices by 15 % in 2023. In this context, the EESC highlights the importance of making further progress on the electricity market reform and the Energy Union, including by investing more in energy infrastructure and interconnections between Member States. In the medium to long term, further integration in this area will be key to lowering energy costs for households, improving the competitiveness of European businesses.












2.8.


Europe is at a competitive disadvantage due to the higher energy prices paid by businesses and households in the short term, while European businesses are facing a subsidy race from the US and China. The EESC believes that a European solution that enhances the competitiveness of European businesses, yet does not undermine the single market, is much needed. Highlighting its opinion on the Strategic Technologies for Europe Platform (STEP) (9), the EESC reiterates its support for this platform and repeats its call for the Commission to establish common instruments, in particular a genuine Sovereignty Fund. These common instruments, aimed at advancing the green transition, should aim to achieve industrial greening through support that is disbursed according to objective criteria and on the basis of clearly identified needs. The EESC also continues to hold the view that it is vital to secure a level playing field in Europe in order to safeguard competition within the single market, which, following the relaxation of State aid rules, is coming under considerable strain by risking a subsidy race. However, the EESC recognises that subsidies are not a long-term sustainable solution. The funding provided by STEP and similar future instruments should therefore remain targeted, be limited in scope and respect the principle of co-financing.






Brussels, 17 January 2024.


The President of the European Economic and Social Committee

Oliver RÖPKE
            





(1)  
            OJ C, C/2024/870, 6.2.2024, ELI: http://data.europa.eu/eli/C/2024/870/oj


(2)  
            OJ C, C/2024/870, 6.2.2024, ELI: http://data.europa.eu/eli/C/2024/870/oj


(3)  Communication from the Commission to the European Parliament, the Council and the European Central Bank on the 2024 Draft Budgetary Plans: Overall Assessment (COM(2023) 900 final).

(4)  https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/autumn-2023-economic-forecast-modest-recovery-ahead-after-challenging-year_en

(5)  Recommendation for a Council recommendation on the economic policy of the euro area (COM(2023) 903 final).

(6)  
            OJ C, C/2023/880, 8.12.2023, ELI: http://data.europa.eu/eli/C/2023/880/oj


(7)  
            EIB Investment Survey 2023: European Union overview.

(8)  
            Employment and Social Developments in Europe: Addressing labour shortages and skills gaps in the EU, European Commission (2023).

(9)  
            OJ C, C/2023/866, 8.12.2023, ELI: http://data.europa.eu/eli/C/2023/866/oj



ELI: http://data.europa.eu/eli/C/2024/2104/oj
ISSN 1977-091X (electronic edition)