Exactly two years ago, in mid-March 2020, in the middle of the pandemic crisis we were taking important decisions. You may remember the first important decisions were taken exactly in mid-March by the ECB and the Commission on fiscal rules and on State-aid rules.
Two years after we are facing a war on our border. So the first message from all of us, as Paschal said, is a message of support and of solidarity.
We are trying to support Ukraine from several points of view, with sanctions, with economic and financial support, with diplomatic efforts, delivering also military equipment. And this is our main task.
At the same time, the discussion was needed and very useful among finance ministers on the implications of this Russian invasion for the European economy. Let me very clearly state that it is too soon to have a clear measure of the quantity of this impact, but it is clear that our winter forecast that were projecting a 4% growth for this year looks now overtly optimistic.
There are several channels through which GDP will be affected: the higher commodity prices, notably gas and oil, but also wheat prices, the aggravating supply disruptions and broken trade links, and significantly higher uncertainty, affecting both economic and financial sector confidence.
Also fiscal costs may be significant: for the support to Ukraine, for bolstering defence spending, for decoupling from Russian energy, for assistance for high numbers of refugees, for continued support to deal with high commodity prices.
This is why we were very clear when, at the beginning of March, we presented our fiscal guidance for 2023 that we would need to stand ready to adjust our policy response to the rapidly changing circumstances. And there was very strong – in fact, I would say unanimous – support for this approach this afternoon. As Paschal reminded, “uncertainty” and “agility” as keywords of our fiscal attitude.
The application of the General Escape Clause this year will help to take the necessary measures to face the immediate challenges of this crisis. Given the current uncertainty, we also made clear that we would need to reassess its expected deactivation in 2023 on the basis of our spring forecast, which I will present in mid-May.
In times like these, when “uncertainty” is the keyword, the coordination of economic and fiscal policies is particularly important. Let us remember that this was key for successfully weathering the COVID crisis and the uncertainty was completely different, but not less than it is now. Now we are confronted with a very different crisis, but also with some similarities. Both the pandemic and the war in Ukraine are huge external shocks with potentially different outcomes across the EU. These outcomes will depend on individual countries’ exposure to Russian energy, on their economic structures, on their geographic location and on their fiscal space. So a common response is also about tackling the risk of divergence. Again, two years after the crisis of the pandemic.
It is important to underline that this shock occurs against a strong economic backdrop in the euro area. So it arrived when the recovery was strongly underway. If our national and EU policy responses remain fully coordinated, if we remain agile and ready to adjust as needed, I think we can ensure that the recovery is not derailed.
This is absolutely possible if we react strongly together.
And we all know that the resilience of our economy is crucial to protect our citizens, but also to protect our democracies. Because this is what is at stake now. In this confrontation, the resilience of the economy is also key for the resilience of our model of the European societies.
On Greece, we discussed the latest enhanced surveillance report, the 13th, which noted that the country has completed a further set of commitments and, despite some delays, also made progress in several reform areas.
In sum, our assessment is that the authorities have taken the necessary actions considering the circumstances. Let me recall that this report was not linked to a release of debt measures by the Eurogroup: this will be for the next report, the14th, in May.
Finally, we discussed state of play with the Banking Union. The geopolitical crisis unfolding at our door is a wake-up call for us to strengthen our resilience on all fronts – and this includes our financial sector.
Thanks to the work done in previous years, banks were able to support economic activity throughout the COVID crisis. But there is no space for complacency. A fully-fledged Banking Union remains essential. So the Commission fully supports all the efforts that Paschal Donohoe is making to broker an agreement on a work plan to that end. I think he designed today the framework of a possible way towards an agreement. If we keep the same level of unity and determination we have showed so far throughout both the pandemic and the first weeks of this conflict, I am confident that we will be able to forge a way forward also on this front.
This is my conclusion. Let me only join Paschal in thanking and congratulating Klaus. Of course he’ll work with us for several months. But on this occasion I want to thank him and congratulate him for all his work.