Eurogroup Statement on the Draft Budgetary Plans for 2022

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  The Eurogroup welcomes the Commission’s analysis of the budgetary situation in the euro area as a whole and its Opinions on the individual draft budgetary plans (DBPs) of the euro area Member States, published on 24 November. This exercise is key to the coordination of fiscal policy in the euro area.
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  Thanks to the swift, sizeable, and well-coordinated policy action at the EU, euro-area and national level, taken against the backdrop of the general escape clause of the Stability and Growth Pact, the euro area economy is recovering from the recession faster than expected. The Commission Autumn Forecast projects real GDP in the euro area to grow by 5% in 2021 and 4.3% in 2022. The euro area economy is expected to return to its pre-pandemic levels already by the end of the year in quarterly terms. However, the recovery is expected to be uneven across countries and sectors. Moreover, the level of uncertainty is particularly high, risks are substantial and new headwinds to the economic outlook have emerged.
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  The strong rebound in economic activity has gone alongside an increase in inflationary pressures, including due to energy prices, after years of subdued levels of inflation in the euro area. The supply side of the economy has struggled to keep pace with the abrupt swings in the level and composition of global demand, which has created several bottlenecks in global supply chains and in the availability of raw materials and key production inputs. At the same time, labour market shortages in some sectors are also affecting supply-side dynamics. While the uncertainty about the inflation outlook has increased, the Eurogroup acknowledges the view of the institutions that heightened inflation is expected to be transitory and inflation expectations appear well-anchored.
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  The general government deficit in the euro area is expected to narrow marginally in 2021 to 7.1% of GDP and then set to improve considerably in 2022 to 3.9% of GDP in the Commission autumn forecast. This reflects both the planned phasing out of most of the emergency fiscal measures and the expected strength of the economic recovery. Due to the pandemic shock to economic activity and the ensuing fiscal response, general government debt in the euro area rose sharply in 2020. It is expected to reach its peak this year at 100% of GDP, before starting to fall gradually in 2022 and 2023. Financing conditions are expected to remain favourable over the forecast horizon, which combined with the lengthening of maturities over the recent years, will help to keep debt-servicing costs limited.
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  The Eurogroup agrees that a moderately supportive fiscal stance in the euro area for 2022 is appropriate for the recovery to maintain traction in the near term, also in light of the downside risks, which remain pronounced and some have already started to materialize.Taking into account the strength of the recovery, but also the recently increased risks associated with the pandemic, Member States should stay agile in their policy response. When gradually moving from generalized fiscal support to more targeted policy measures, Member States should reguarly review the use, effectiveness and adequacy of the support measures and stand ready to adapt them as necessary to changing circumstances, while safeguarding fiscal sustainability in the medium term.
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  The Eurogroup recalls the importance of enhancing investment and the growth-friendly composition of public finances as well as robust fiscal frameworks across the euro area. These elements will help support the euro area’s growth trajectory going forward and facilitate the green and digital transition of our economies.
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  The successful and rapid implementation of Next Generation EU, in particular the Recovery and Resilience Facility, will be key to supporting the recovery and improving the growth potential in the euro area. The Eurogroup calls for a swift and effective implementation of the Recovery and Resilience Plans, as approved by the Council.
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  We agree with the Commission’s assessment that the individual Draft Budgetary Plans are broadly in line with the fiscal policy recommendation adopted by the Council on 18 June 2021. We welcome the Commission’s assessment that, overall, individual Draft Budgetary Plans are intended to support the recovery and that nationally financed investment is planned to be preserved or broadly preserved in 2022 in all euro area Member States.
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  The Eurogroup agrees that Member States with low or medium debt should pursue a supportive fiscal stance in 2022, while Member States with high debt should use the Recovery and Resilience Facility (RRF) to finance additional investment in support of the recovery, while pursuing a prudent fiscal policy. All Member States should preserve nationally financed investment, as planned.The Eurogroup invites those high-debt Member States, where the growth of the nationally financed current expenditure is not planned to be sufficiently limited according to the Commission’s assessment, to take the necessary measures within the national budgetary process.
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  The Eurogroup will continue to monitor the economic situation and will reassess the policy orientation in view of the economic outlook for 2023 and beyond, the inflation and supply-side dynamics, as well as the need to ensure the medium and long-term sustainability of public finances, whilst giving priority to investment to support the twin transition. In this context, we look forward to a timely discussion on the fiscal guidance that the Commission will submit for the period ahead.
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  The Eurogroup remains focused on the long term successful functioning of the Economic and Monetary Union, so as per our Work Programme and in cooperation with the Council Presidency and in the appropriate format, we will discuss euro-area relevant aspects of the economic governance review in order to provide input to the review launched by the Commission.

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