Remarks by Commissioner Gentiloni at the Eurogroup press conference
As we noted in our Winter Forecast last month, the euro area economy entered this year on a slightly better than expected situation than expected a few months ago. But we are not out of the woods yet and uncertainty remains very high.
The collapse of Silicon Valley Bank is a clear reminder of that. While at the EU level there is a very limited presence of this bank - very, very limited and so we don't see direct consequences - we are following developments closely and have taken note of the decisive reaction by the US authorities.
Turning to our fiscal policy guidance for 2024, which we presented last week, with the aim to provide clarity in these uncertain times. Our guidance will help Member States prepare their medium-term fiscal plans, which they are preparing to present in April.
With the deactivation of the general escape clause of the Stability and Growth Pact at the end of this year, Member States should pursue prudent fiscal policies to ensure stability and facilitate the effective transmission of monetary policy.
Our guidance calls on Member States to phase out their energy support measures, starting with the least targeted and to pursue prudent budgetary policies, reflecting their public debt challenges. They should also continue protecting nationally financed public investment and ensuring the effective use of the RRF and other EU funds. This is particularly important in light of the green and digital transition.
The guidance reflects the spirit of our economic governance reform orientations, while of course remaining consistent with the current legislation. Discussions on economic governance are proceeding in a very constructive manner. We had a very consensual discussion today on the euro-area specific aspects of the reform. Tomorrow in the ECOFIN Council we will discuss conclusions on the broader aspects of the reform. This would pave the way for the Commission to adopt its legislative proposals in the coming weeks. It would send a strong signal that we are committed to reach an agreement on this important reform and to doing so as soon as possible.
Concerning inflation, we are seeing somewhat mixed signals. On the one hand, headline inflation in the euro area appears to have passed its peak and is slowing down quite significantly.
It has now slowed for four months in a row – from 10.6% in October last year to 8.5% in February – on the back of a sharp decrease of energy inflation. On the other hand, core inflation continues to rise and price pressures have broadened significantly.
Risks to the inflation outlook remain high.
- On the external side, risks relate mostly to the further impact on commodity prices of the war and the re-opening of the Chinese economy.
- On the domestic side, the outlook for core inflation will depend on wage developments in the labour market, which for the moment are not so significant and we stressed that they could be balanced by high levels of profits in some Member States, so that they could manage some level of wage increases.
Briefly to conclude on the digital euro, we reiterated to the Eurogroup today our intention to present a legislative proposal in the second quarter of this year. There are two main drivers for this proposal establishing the digital euro.
First, in a rapidly digitalising environment, central bank money (currently only cash) is becoming less used for payments in a growing part of the economy. This risks diminishing the role of public money in payments and the economy at large, with possible consequences for the trust in the financial system. In addition, the ongoing digitalisation of manufacturing and the decentralised internet require innovative digital payment features that cash cannot provide.
Second, all major economies and several private actors are considering issuing digital currencies. Those not denominated in euro may affect the role of the euro in the European retail payment markets and in international trade.
So our proposal will address a number of key elements: legal tender status, financial stability, privacy, anti-money laundering requirements, international use and distribution of the digital euro.
Let me also underline that it is clear is that the digital euro should not replace cash and that this is not the Commission's intention.