Opening remarks by Paschal Donohoe at the Real Instituto Elcano event - Opportunities for the euro area in the context of the recovery
Let me say a few words on where we stand within Europe and within the Eurogroup, and what is, I agree with Nadia, a very important juncture in our economic and political developments for 2022 and for many years to come.
I was really taken by the introduction and the references to the number of anniversaries- the sombre anniversary that will approach when we consider the two years its been since the beginning of the pandemic.
In Ireland it is 50th anniversary of joining the EU, and also the 100th anniversary of the publication of Ulysses by James Joyce.
In terms of analogies - I could draw between the publication of Ulysses and the work of the Eurogroup. It is difficult to know the views of James Joyce with regards to fiscal rules, Banking Union and Capital Markets Union, as much meaning as there is in Ulysses, I would be hard-pressed to distil his views on those topics. However, Ulysses is a masterpiece of European literature, telling the story of three characters - Molly Bloom, Leopold Bloom and Stephen Dedalus. While it is a novel set in Dublin, these are three figures that have a distinctly European identity. At the heart of Ulysses, it is Joyce exploring the Irish identity and Irish culture in a European framework. It is no accident that Joyce spent all of his greatest and most creative years living outside Ireland, where he wrote Ulysses and several other masterpieces. When I consider the relevance of the 100th anniversary of the publication of Ulysses, it is symbolic that in Ireland we are celebrating this and the 100th anniversary of key moments in Irish independence, and also the 50th anniversary of our membership of the EU. There is deep symmetry in those moments.
This leads me back to what we are discussing today: the future of Europe, the future of the euro area, the future of the people of Spain and of Ireland.
When landing here this morning, I found myself reflecting on the difference of the landscape at a distance, compared with the landscape I would see coming into Dublin. Reflecting on the EU as a political project, this is why it is so fundamentally important - while we may have differences in geography, in climate, in language, at the heart of the EU is an affirmation that we have so much more in common than in difference. It reminds us that by making a political commitment to all we have in common, we build a structure which helps us achieve more collectively than individually. This is a source of great strength.
The strength, the foundation was tested over the last few years - as has been said, we have used that foundation of common outlook on Covid, to protect each other and to achieve so much at the most difficult of times. If we look at where we stand now compared with last year or two years ago, we can make the case that a collective response achieved more than an Irish response or Spanish response could have achieved independently. We came together at a moment of existential challenge, and of course there were challenges and times where our response wasn’t what it should have been, but coming together we have overcome so much.
Look at what we have achieved with our vaccination programmes, with the SURE programme, with Next Generation EU. Look critically at the results of our shared commitments and shared actions. Our policies worked and are working.
If you look at the Euro area, we have output back to where it was pre-pandemic. Euro area unemployment reached a record low of 7%. Look at the Spanish economy, while not yet back to pre-pandemic, which partly reflects the importance of tourism in the Spanish economy, similar to its importance in the Irish economy, look at the speed of the recovery - loot at what you have achieved protecting income, employment, helping the recovery of businesses in Spain. Look at the Spanish performance in the final quarter of 2021, where there was a 2% growth in income relative to 0.3% across the euro area, it shows the impact of the plans in Spain, combined with continued progress in protecting jobs and getting those who have lost jobs back working.
At this point, I want to acknowledge the contribution from Spain. I vividly remember your contributions at critical Eurogroup and Ecofin meetings, making the case for a different response by Europe to this different challenge. In no small part, it is due to her advocacy making the case for a different response that not only is Spain in a different recovery space so also is Europe. Due to those efforts the Recovery Fund was established, and Nadia’s prominence and input was recognised in her recent speedy election as Chair of the IMFC.
If you look at where we are now, and what is to come, despite the new challenges that are emerging, we should use these fora to recognise what we have achieved while also facing challenges to come.
If Covid-19 has taught us anything, we still need to acknowledge uncertainty associated with it. That is why Eurogroup has agreed on a moderately supportive fiscal stance this year and also the need for flexibility and agility in how we respond to an economic situation that changes so quickly.
We also see the prominence of inflation as a risk for our recovery. This topic, including energy prices, has featured heavily on Eurogroup agendas since the summer.
Monetary policy of course is the role and task of the ECB, but the effect of higher prices on growth and on the purchasing power of those we represent is concerning. Moreover, the factors that have influenced these prices are taking longer than expected to dissipate. In the meantime, we must remain vigilant and Spain, like my own country Ireland, has taken a series of measures to protect households and businesses from the negative impact of higher prices, and particularly for energy prices.
As we look to the future, in Eurogroup, we continue to work tirelessly to reach agreement and put in place policies and interventions for our countries to allow them to emerge from the difficulties of the past two years.
As I alluded to earlier, our policies are working. Millions of lives and millions of livelihoods have been protected. The euro area policy response has been swift, coordinated, powerful and well-balanced.
This brings me to the ‘Next Generation EU’ and the Recovery and Resilience Facility (RRF), which Nadia was a key supporter of throughout all stages of the political discussions. For example, at a very early phase of the debate on the concept of Eurobonds, this was supported by both Spain and Ireland amongst others. There, because of our recognition of the profoundly different nature of this crisis. This led to the RRF, the centrepiece of the EU response to the crisis.
Spain was the first country to receive a successful payment request assessment under the Facility last December, with a disbursement of EUR 10 billion. This highlights the effective implementation of reforms in Spain, and I’m confident that this level of support will allow you to build on the recovery clearly underway here.
At Eurogroup we are conscious of the need to promote investment, as this is indeed a key driver for the success of our two transitions - to a more green and a more digital future.
Investment has been too low for too long in Europe - a legacy from past crisis.
NGEU offers an opportunity to co-ordinate and prioritise investment. From this, we should be able to embrace these transitions to a very different and better future.
As you will be aware, last October the European Commission relaunched the economic governance review. Eurogroup is discussing key aspects of this review specifically the euro area dimensions so as to contribute actively and positively to the debate.
Our first substantive discussion on this took place last November and in January we considered the processes around draft budgetary plans and macroeconomic surveillance introduced by the “two-pack” legislation, and different mechanisms embedded in the so-called “six-pack”.
There has been an exceptionally high level of engagement by ministers and this will feed into the Commission’s deliberations. Over the next number of months, we will continue to debate aspects of the framework.
I am aware of the Elcano Institute’s own work in this area and your paper on the topic in December 2021 on this topic. It is fair to say that there is a lot in this paper. So I look forward to hearing your thoughts during the Q&A session.
At our March Eurogroup meeting we will debate and I believe reach agreement on the right budgetary policy for the euro area for 2023. It gives us the opportunity to drive this process forward in a sensible and pragmatic way. We are all aware of the lessons from the last crisis and of the challenges we face today. It is critical that we get this balance right, and in particular the balance between debt sustainability and how to fund growth and investment.
While it is too early to draw any conclusions from our discussions to date, I am confident that Eurogroup will be a key and active participant in the economic governance debate as the Commission develops their proposals.
Another key issue that we are discussing at Eurogroup is the future of our Banking Union, a critical part of our Economic and Monetary Union. But we also know that in facing the green and digital transitions, we will need to find new sources of funding which is why we need to strengthen our Banking Union and our Capital Markets Union.
I’m well aware of the deep political sensitivity of this topic.
An enormous amount of work has gone into this project, in particular during the past year and a half. We have made good progress, we have achieved much with an agreement on ESM reform in November 2020 which provides for the establishment of a Common Backstop to the Single Resolution Fund. This will become operational shortly.
At the December 2021 Euro Summit, our leaders again mandated Eurogroup to finalise a work plan for the completion of Banking Union.
I am committed to fulfilling this mandate and I intend to present a balanced proposal to colleagues in the coming weeks, taking into consideration existing issues for member states as well asking Governments and Ministers to approach this work with fresh eyes.
We have a window of opportunity, thanks to a shared commitment among member states to this project we must take advantage of what we have already achieved in order to make more progress on this part of our Union.
We must also consider the sizable cost of inaction at this point, in terms of signalling but also postponing progress to a next crisis. There is a better way and that involves in how we engage with this topic in the coming weeks and months - reaching agreement on a new work programme for how to complete Banking Union.
While I am aware of the difficulties, I am also optimistic that agreement is within reach, and this is my priority in the coming months.
To conclude on the possibilities of progress and its value. I began with acknowledging the anniversaries, and the value of what we have in common and how we harness this in the EU. As I look to the challenges and opportunities that lie ahead, 2022 promises to be a significant year in overcoming those challenges and grasping the opportunities.
At the heart of that is a euro area that is looking for a strong and sustained recovery, and a Eurogroup of Finance Ministers that come together to share our views, our experiences and to use this sharing of insights to coordinate efforts and achieve more collectively than individually. In this project we rely on the ongoing positive contribution by Spain. I look forward to working with Spain in the year ahead as we deal with these challenging but deeply important projects.