Debate: Tackling the economic impact of the COVID pandemic by focusing on investment, competitiveness and skills
Date: TUESDAY, 9 MARCH 2021
Speaker: Paolo Gentiloni
Language: EN

The negative impact on the economy, and we will have to be aware and even proud of this, would have been much bigger without fast and decisive EU and national action. Our decision last March to activate the general escape clause was a recognition of the gravity of the unfolding crisis. Together with the decisions to adopt a temporary framework for state aid rules and together with the decisions taken by the ECB, these institutions’ reactions enabled Member States to deliver an unprecedented fiscal policy response. Total direct fiscal support amounted to around 8% of GDP in 2020 in the EU. Together with additional liquidity support measures, it is estimated the contraction of GDP in 2020 was cushioned by around 4.5 percentage points. National and common fiscal response go hand-in-hand. I think we should consider them together. When we, for example, make a comparison with what is happening in America, in the US, we should consider the two parallel track of the European reaction. We are not a federal state. We have to combine and make national and common reactions go together. I am telling this because, today, probably the American, the US House, will finally approve the 1.9 trillion stimulus package of the new US Administration. This will also have a very positive impact in our economy. But all in all, I think we have to consider the whole reaction and not only our common tools.  Vital liquidity support made possible by the temporary framework for state aid prevented liquidity shortages from turning into solvency problems. And we would have had solvency problems without this extraordinary authorised State aid. And we had the contrary. We had the lowest level of bankruptcies in many years in 2020. Now our message is clear to further cushion the impact of the crisis. Fiscal support should continue as long as needed. And it is the same message which comes from multilateral fora such as the G7 and the G20 and by key international partners.  We must ensure that we don’t repeat the mistakes of a decade ago by pulling back support too soon. And so for 2022, it is clear that fiscal support will still be necessary. Better to err towards doing too much rather than too little. Based on current indications, the general escape clause would remain active in 2022 and be deactivated in 2023.  I think conditions are there for a strong recovery. Again today, the OECD confirmed in its forecast a growth for 2021 of 3.9% and for 2022 of 3.8%, which is very near to the Commission’s forecasts presented one month ago. This is a strong economic growth for an economic area such as the EU. So we will face the crisis. We are still five points behind what we were at the end of 2019, but we have all conditions for a strong recovery in the next couple of years, beginning this summer. Fiscal policy then should be differentiated according to the pace of each country’s recovery and the underlying fiscal situation. Timely, temporary and targeted measures will allow us to move towards a return to sustainable budgets in the medium-term, ensuring debt sustainability while also enhancing investment.  Finally, a few remarks on our common EU tools. Of course, the RRF is a game changer. Its effective implementation could deliver up to 2% of additional GDP by 2024 and create two million jobs, including by accelerating the green and digital transition. It is vital that we make use of this opportunity to increase both the level and the quality of our investment. InvestEU is another critical tool. We discussed it this morning, and I think that also thanks to the strong support of Parliament, this tool will also help to crowd private investment for the transition.  The SURE instrument has proven very popular. We have already proposed over 90 billion of support out of a total envelope of 100 billion and 19 Member States asked for this support despite the very low interest rate environment we are in. Finally, EASE, Effective Active Support to Employment, is also a new and important tool. It provides guidance for Member States to accompany labour market transitions from decline into expanding sectors, including green and digital, anticipating change and assisting workers affected by restructuring processes.  So, ladies and gentlemen, honourable Members, with the economic outlook surrounded by uncertainty, we must deliver on all these fronts to make sure the recovery takes hold on our economies, that we emerge renewed and more resilient from the crisis and stronger for the twin transition. This should equip our economy for the present and for the future. And fairer because no one should be left behind.