Debate: The th consecutive increase in reference interest rates decided by the ECB and its consequences
Date: TUESDAY, 3 OCTOBER 2023
Speaker: Margaritis Schinas
Language: EN

Fortunately, we see more promising signs for next year, when the economy should stage a mild rebound, underpinned by lower inflation, a strong labour market and record low unemployment. Nonetheless, we need to work further to bring inflation back to its 2 % target as the economic, as the social consequences of higher and more persistent inflation would be dramatic for Europe. And this is exactly the mandate of the European Central Bank. The ECB’s main tool is, of course, setting the level of the interest rate. The ECB is independent in the conduct of its monetary policy. This is the golden rule of our European economic governance under Eurozone role. So as you can imagine, I will specifically refrain from commenting on ECB rule. I would nevertheless say that the fight against inflation entails important consequences for households, workers, businesses and requires a well- calibrated policy strategy beyond monetary rules.  Let me tonight focus on four elements that are key for this calibrated policy response. First energy prices. Second, the macroeconomic policy mix. Third, the need to protect the vulnerable. And four, the role of reforms and investment. The initial inflation spike was the result of skyrocketing energy prices as a direct consequence of Putin’s energy blackmail and instrumentalisation of energy against us. The price for gas in Europe was over EUR 300 per megawatt hour one year ago. We implemented, together, a joint collective approach to reduce energy prices. We pooled our demand and bought energy together. We used our critical mass as Europe to lower prices and secure our supply, and we managed to significantly reduce our dependence from Russia. And now gas prices are around EUR 35. From EUR 300 to EUR 35. Lower and more stable energy prices are essential for underpinning a steady reduction in inflation to safeguard consumers purchasing power and to support the competitiveness of our companies. We need to continue working on this track, for instance, regarding the electricity market reform.  Now, as it comes to the macroeconomic policy mix, the second area that I would like to concentrate on. Fiscal policy should not add to inflationary pressures. This means that fiscal policy should be prudent. A wrong balance would only lead to higher, more persistent inflation and even higher interest rates. The third consideration is the need to alleviate the impact of high inflation on the most vulnerable. EU funding, for instance, through the European Social Fund Plus and the Just Transition Fund can certainly help. And the European Directive on Minimum Wages will also improve people’s working and living conditions. Fiscal support measures should be targeted to those in need. This will make them more effective and at the same time keep them affordable. Now that energy prices are coming down, it is time to wind down emergency measures, but with another potentially difficult winter ahead of us, we need to remain collectively vigilant. Finally, the timely and full implementation of reforms and investments will be vital for boosting our social and economic resilience and to drive forward the twin transitions.  Ladies and gentlemen, honourable Members, safeguarding our long term competitiveness is the best guarantee to secure many and high quality jobs. We have one successful, clear strategy for that that is already paying dividends. It is built around the Recovery and Resilience Facility. And with REPowerEU, we are taking significant steps to reduce our reliance on fossil fuels into the direction of renewables. This will reduce certainly our exposure to external surprise supply or price shocks and support our future competitiveness.  It is also important to work on faster permitting tackling labour shortages, boosting future-oriented skills, and establishing an investment-friendly business environment without undue bureaucracy and red tape. And in building this future economy, we should pay particular attention to its fairness and inclusiveness dimension. Our social systems in Europe are there to offer adequate protection. Member states must continue and in some cases accelerate the implementation of the reforms and investments included in their plans. These are reforms that we have agreed upon and we know that there are difficulties, there are challenges, but these are perfectly feasible. And the Commission is working closely with all Member States to make sure that their implementation is carried out in a timely and rapid way.  Finally, we need to continue deepening our single market, the biggest and best regulated internal market in the world. We need to do this by enforcing the existing rules, lifting investment barriers, in particular in services. And if we want to make Europe an attractive investment destination. We certainly need more progress in deepening our Capital Markets Union. I look forward to discussing these issues with you tonight and to continue working on them in the interest of our economy and of our people.