Economic and monetary union: My report to the President of the Euro Summit

Dear President,

Over recent months, the Eurogroup has made progress on a number of key policy issues for the smooth functioning of the monetary union. We have continued our close coordination on the policy response to the pandemic so as to drive recovery. We have also looked beyond immediate recovery needs and focussed on the conditions for a stable and prosperous euro area economy, including strengthening the international role of the euro, driving long-term structural changes, considering the possible introduction of a digital euro and advancing the Banking Union.

We have regularly discussed economic challenges arising from the Covid-19 crisis. The latest data and projections show that our economy is on track to recover strongly. Expected growth dynamics have been revised upwards and output in the euro area is forecast to return to pre-pandemic levels in early 2022, earlier than previously expected. This is an indication that our unprecedented efforts and determination in addressing the economic fallout from the pandemic are paying off. We realise, however, that uncertainty still remains very high and we will need to continue to monitor the situation and adjust our response as necessary. The risk of an uneven recovery across countries and sectors is very real. There remains a strong need to continue supporting the recovery and coordinating our collective responses. We have continued our focus on protecting businesses and citizens.

Close coordination of fiscal support within the Eurogroup has been the central element of our common policy response. There is full agreement on the need to avoid premature withdrawal of fiscal supports and to deliver a supportive fiscal stance in 2021 and 2022. This includes the fiscal stimulus stemming from the Recovery and Resilience Facility (RRF). We will continue the close coordination of fiscal policies in the euro area to ensure a sustained recovery, underpinned by our commitment to fiscal sustainability.

The Next Generation EU and RRF offer a unique opportunity to support reforms and meet investment needs that will strengthen resilience, address imbalances, deliver a sustainable and inclusive recovery and boost long-term growth. Ambitious RRPs and their swift implementation are key to a transformative recovery.

We held several discussions on the structural impact of the pandemic on our economies with the risk of long-term scarring featuring prominently. We agreed on the need to tackle these risks and to avoid exacerbating any pre-existing imbalances. We are particularly concerned about the risks of social inequalities and we are determined to continue shielding the most economically vulnerable groups of society. We also discussed the current situation and prospects for the corporate sector in the euro area and recognised the challenging task of facilitating an efficient reallocation of resources across economic sectors. We acknowledged the challenges in supporting viable firms to avoid solvency problems and the key role of efficient insolvency frameworks. At the same time, we also identified opportunities in the digital and green transitions. We will continue exchanging best practice and coordinating policies to assist corporates to successfully adjust to the new challenges.

Efficient payment infrastructures are important for a competitive and innovative economy. Following the Euro Summit’s call to take forward the exploratory work on the possible introduction of a digital euro, the Eurogroup has continued to closely monitor the ongoing work and discuss its possible implications. The digital euro has potentially far-reaching repercussions for our citizens, businesses, and the Economic and Monetary Union as a whole, and it entails both complex technical aspects as well as important policy choices. We will revert to this topic regularly, focusing on its political dimension, while fully respecting the institutional roles and mandates of all actors involved.

The agreement last year on the ESM Treaty and on the early introduction of the common backstop confirmed our commitment to the deepening of the Economic and Monetary Union and completing the Banking Union, as one of its cornerstones. Following the mandate of the Euro Summit in December 2020 and based on input from the High Level Working Group, we have discussed, for each of the outstanding work streams needed to complete the Banking Union, the possible objectives as well as a spectrum of possible elements that could feature in a comprehensive work plan to guide work on the completion of the Banking Union.

We have made progress on elements of the Banking Union and there is support for its completion in order to

1. support the recovery and provide funding to the economy,
2. strengthen financial stability in Member States and in the Economic and Monetary Union,
3. protect taxpayers and depositors, and
4. support Europe’s competitiveness and strategic autonomy.

Yet, more work is needed to reach consensus on a work plan that is sufficiently ambitious and provides clear direction for our work in the coming years. We will continue our discussions on a consensual basis and in particular, we will look at the elements of the work streams and their sequencing, in order to aim to find agreement on a stepwise and time-bound work plan by the end of this year. In parallel, we aim to develop further consensus through discussions at Eurogroup, that will assist in the consideration of Commission legislative proposals for completion in the current EU institutional cycle.

The Eurogroup is committed to completing the Banking Union, which will strengthen financial stability in Europe and create the best conditions for our businesses to have access to stable financing. In this context, as recalled by the Euro Summit in March 2021, progress towards a true Capital Markets Union (CMU) is essential to support the financing of the economy, complement the Banking Union, and strengthen market-based adjustment mechanisms in the euro area. The Eurogroup therefore welcomes the progress made in the Council, particularly on the European Single Access Point (ESAP), which should help investors to get easy, quick and comparable access to European company data, thereby facilitating the financing of European companies. Banking Union and CMU are cornerstones of a robust EU financial system and indispensable to build a strong economy in the post-pandemic world.

Given Europe’s long-standing commitment to openness, free trade and a rules-based international order, we have also looked at our economic situation and policy response in the international context. We agreed on the importance of continued global cooperation, mindful of policy challenges but also that solutions transcend national borders. Our commitment to strengthen the international role of the euro will support Europe’s strategic autonomy in economic and financial matters.

The priorities mentioned above will feature in our work going forward. Let me again stress our commitment to strengthen our economy and our Economic and Monetary Union in order to deliver prosperity to our citizens.

https://www.consilium.europa.eu/en/press/press-releases/2021/06/21/economic-and-monetary-union-president-donohoe-s-report-to-the-president-of-the-euro-summit/