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The Budgetary Inflection Point in Europe
As the President of the Eurogroup, I am here to discuss the current budgetary situation in Europe and the challenges we face in achieving sustainable public finances, strong investment, and solid economic growth.
The Robust Labour Market Performance
Despite some unexpected external shocks, the euro area economy has remained remarkably resilient. The labour market performance is a testament to this, with jobless numbers at historic low levels. However, the budgetary environment has become more challenging.
The Budgetary Environment
Borrowing costs have risen by nearly 300 basis points since the end of 2021, and government spending as a share of national output is now significantly ahead of pre-pandemic levels. Budget deficits in the euro area averaged 3.6% of GDP last year, with public debt at just under 90%. These numbers are higher than estimated last autumn.
The Investment Gap
Europe faces a substantial and increasing investment gap, which could conservatively be placed at €1tn per annum once climate, digital, and defence needs are added together. Thinking further ahead, with an ageing population and an enlarged EU, these numbers will only get bigger.
The Need for Change
Economic policy has normalized over the past few years, but we need to step up how we manage our public finances. Pursuing sound public finances and debt sustainability remain key. That is why it is imperative that countries’ medium-term plans begin on a strong and credible footing.
Addressing the Key Challenge
Europe is falling short in terms of its growth potential. We need to continue with structural reforms and expand investment. There are important budgetary constraints as we pursue policies to put our public finances on a more sustainable footing.
The Role of European Instruments
We have to make the best use of European instruments such as NextGenerationEU (NGEU). NGEU has been an unprecedented joint European response meant to preserve and increase public investment, to put our economies on a stronger, more sustainable, and inclusive growth path. We are halfway through implementation, and we must ensure that the best use is made of the remaining time.
The Capital Markets Union
We need to make progress on the capital markets union. Results will only be tangible in the medium term, but this is not an excuse for delay. A deeper and more integrated capital market in Europe is required. We now have an important ingredient for progress that we did not in the past – political will.
The Path Forward
I remain convinced that there is a path forward. Tangible and timely progress on the capital markets union is key to resolving the budgetary trilemma. It will not only ensure that we can keep up the pace of investment but also facilitate a return to lower levels of borrowing. A real shift in growth levels across the EU will depend on progress on these fronts.
Conclusion
Embracing both economic prudence and investment for the future is not a choice between caution and ambition. It is a strategy for resilience and growth in an ever-evolving world.
FAQs
Q: What is the budgetary inflection point in Europe?
A: The budgetary inflection point in Europe refers to the need to reduce deficits and rebuild a stronger financial safety net while facing multiple short- and long-term spending and investment demands.
Q: What is the role of European instruments in addressing the budgetary challenges?
A: European instruments such as NextGenerationEU (NGEU) are crucial in addressing the budgetary challenges. NGEU has been an unprecedented joint European response meant to preserve and increase public investment, to put our economies on a stronger, more sustainable, and inclusive growth path.
Q: What is the capital markets union, and why is it important?
A: The capital markets union is a key component of the European Union’s financial architecture, aiming to create a deeper and more integrated capital market in Europe. It is important because it will facilitate a return to lower levels of borrowing, ensure that we can keep up the pace of investment, and promote economic growth.
Q: What is the key challenge Europe faces in terms of growth?
A: Europe is falling short in terms of its growth potential. We need to continue with structural reforms and expand investment to address this challenge.
Q: What is the recommended strategy for addressing the budgetary challenges in Europe?
A: The recommended strategy is to pursue sound public finances and debt sustainability, while also investing in the future to drive growth and economic development. This requires a combination of economic prudence, investment, and structural reforms.
Author: www.ft.com
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