Opening address by Paschal Donohoe at the Hertie School on “Coordinating Euro Area fiscal policy to drive an inclusive recovery”

Thank you for the kind invitation to address you all today.It goes without saying that I would prefer to be joining you at your campus in the Friedrichstraße today, right in the heart of Berlin. One of the privileges of my role is the level of engagement I get with smart, impassioned people from all around our European community. And as wondrous as technology is, I look forward to the day when we can meet in person.

Today is the first in a series of engagements I will be having, as President of the Eurogroup, with leading policy research centres around Europe, which focus on European policy.

Right from the outset, my candidacy for the Presidency was fundamentally based around a vision of an effective, inclusive and transparent Eurogroup. Of course, as President, I have placed a focus on a high level of regular engagement with my ministerial colleagues in between Eurogroup meetings; explaining my thinking, what we are seeking to achieve and, just as importantly, actively listening to their perspectives andconcerns.

This communication isn’t optional – it is key.

I think another essential part of the President of the Eurogroup brief is to continue this kind of engagement with civic society, academia and beyond. So today I want to hear your thoughts. I want to hear your questions. I want to learn from your perspectives and to be able to reflect on your views on how Eurogroup can play its part in building a sustainable and durable economic recovery from COVID-19.

Eurogroup March meeting

I think the best place to start is to give you an insight into our Eurogroup meeting this week.

Our meeting on Monday started off with a discussion on a Commission paper which looked at the sectoral and structural economic challenges brought about by COVID-19. It is clear that some of the changes which this pandemic has brought may be temporary responses to public health restrictions.

It is clear that others are accelerations of existing trends and are here to stay. The challenge we face is understanding which is which and responding accordingly. We have had to be agile in all that we do; from gathering data, to assessing it, to making budgetary decisions. Eurogroup is dealing with these issues every single month.

We discussed euro area budgetary strategy. The consensus here has delivered a coordinated position that you can see encapsulated through the Eurogroup statement on the Euro Area fiscal stance that we published following the meeting. 

Euro area consensus on the fiscal stance

I think it bears reminding, just how exceptionally seismic the shock over the last 12 months has been. Across Europe all of our Governments and institutions faced economic challenges that were even worse than global financial crisis in 2008. But this time there was a difference. There were times during the financial crisis, when countries in our community may have felt somewhat isolated or exposed. I know there were times when it would be fair to say that we felt so in Ireland. There was a lack of political tools and structures to tackle shocks of this scale.

This, I feel, was the difference this time. Europe was different. In a thousand ways.

We did not expect a shattering global pandemic – but through Eurogroup and beyond we had the political processes and structures in place to support one another. During the financial crisis, some commentators with very large audiences, and sometimes not a lot of insight, proclaimed the end of the euro, the end of the EU and much more beyond. Multilateralism was dead – countries needed to fend for themselves, we were told. There were no such credible proclamations this time.

Within Eurogroup, so far, we have achieved an unprecedented level of coordination on economic and fiscal matters; all with the clear goal of supporting citizens, businesses and countries.

The activation of the General Escape Clause and the temporary framework for State aid, allowed national governments to put in place a far-reaching level of fiscal support in 2020. This is estimated at about 8% of GDP, in addition to liquidity schemes of about 19% of GDP.  These supports have saved many millions of jobs in European firms.

At Eurogroup on Monday (15 March 2021) there was absolute consensus on the budgetary stance for this year and next. There are a number of elements to this but the key takeaway is the unanimity on the need for supportive economic policy right across the Euro Area.

There will be no premature withdrawal of budgetary support. This provides clarity and certainty at a time marked by uncertainty. Furthermore, the statement also reaffirmed the need for ambitious reforms and productive investment, supported by the Recovery & Resilience Facility (RRF). These offer us all a unique opportunity to deliver stronger and more sustainable growth for all.

I have worked hand-in-hand with colleagues across Eurogroup to coordinate a budgetary strategy for the months ahead. This is informed by developments within Member States, forecasts from the Commission, and the ECB, and also our own insights.

In May, we will take the conversation forward on the back of the Commission Spring Economic Forecasts and further reflect on medium-term fiscal rebalancing strategies. In June we will look to deliver a mid-term review of the budgetary situation and fiscal plans, before returning to the fiscal stance in July with a particular focus on 2022.

So you can see that this is a dynamic process of analysis, debate and decision making. Budgetary policy has been agile and it will need to remain so, as we overcome COVID-19. A feature of our economic discussions to date is that we built them on the back of consensus and engagement.

This is at the heart of what Eurogroup does.

The role of Eurogroup

The raison d’être of the Eurogroup is achieving consensus through its focus on political and strategic discussions. This is somewhat different to ECOFIN’s more legislative role.

My emphasis as President has been to ensure Eurogroup meetings are centred around relevant political discussions, which feature a high level of engagement from Ministers. The sharing of experiences and perspectives plays a key role in engaging Ministers and building up consensus.

Every Eurogroup meeting is preceded by many calls to my ministerial colleagues and their teams. This is an essential part of the process of really understanding the issues at play for each Member State and being able to build the pillars of rapport and understanding upon which all political agreements will be built.

There is close coordination not only with Member States but also with EU institutions. This includes the ECB, the Commission, the ESM and the European Council. We also have regular inter-institutional actor meetings, a mouthful, I appreciate – or in simpler words, the four Presidents – namely, the EU Council, Commission, ECB and Eurogroup. All of these feed into how we operate.

This in turn creates stability in our decision-making. This is a vital ingredient at a critical time.

A recent book by a British writer, John Kampfner, on German society and politics acknowledged approaching challenges but argued that:

“Stability on its own will, for sure, not be enough.

But it is not a bad starting point!”

Within the Eurogroup such stability is not just a starting point, it is a foundation that I work to sustain.

Support in time of greatest need

Turning now, to some of the measures agreed over the past year, the EU response has been unprecedented. The centrepiece of this was Next Generation EU and the RRF. In addition, the three European safety nets – SURE to mitigate unemployment risks, the EIB Pan European Guarantee Fund, and the ESM Pandemic Crisis Support, agreed in Eurogroup inclusive – complemented national responses.

While a year ago, this crisis would have been unimaginable, I equally think the EU response has also been unimaginable.

Aside from budgetary measures, the other major economic policy lever we have is monetary policy. The series of decisions and actions from the European Central Bank have preserved favourable conditions for all sectors of the economy. Furthermore, the actions by our supervisory authorities have also been indispensable.

Aside from economic policy measures, Eurogroup has made significant progress in advancing Banking Union. This included an agreement on ESM Treaty Reform and the early introduction of the backstop to the Single Resolution Fund at the end of last year.

However, our Banking Union work does not stop there. More is needed and more will be done. In fact, I have a duty to report to our leaders next June on how we will make further tangible progress. So for the students in the audience, with thesis and assignments due for this semester, my own Banking Union paper is due in June.

It is true to say that the journey of reform we have embarked on since 2008 has been, at times, very difficult. In something as huge as Europe, beyond the external challenges, there is complexity at every turn.

Here at Hertie you have delivered some of the most articulate, accessible and insightful analyses of where reforms have worked and where they have not. I note some of your recent work called into question the role and relevance of the Eurozone and the Eurogroup in a post-Brexit, pandemic world.

But I would humbly suggest that perhaps sometimes our perspectives can be dominated by a sense of what remains to be done and the great challenges we face. Sometimes, I think we also need to take a step back and to reflect what has been achieved and what is being done…in real time, returning to that phrase from earlier.

In particular, I believe the Eurozone dimension in policymaking is as vital as ever. The reality is that Eurogroup and the structures around it have performed during this crisis. They have delivered consensus, something that is of enormous political value.

Conclusion

I believe it is inconsistent to knock the ability of an unabashedly politically based forum to deliver real action and value, just after it has secured consensus on unprecedented supports and reforms.

Within Eurogroup we will intensify our coordinating efforts and build on our recent success with Banking Union to identify further areas of progress.

I believe that the value of political effort is particularly clear when we are confronting uncertainty on behalf of our citizens. Our economic and political union is built on connectivity and inter-dependence. We face a virus that uses the same qualities to infect. So there is a symmetry in this context.

Your great writer, Jenny Erpenbeck, in her induction to the Berlin Academy of the Arts, said:

‘Maybe it’s more important that beyond the borders of our skin, beyond the borders of language, and beyond various individual branches of the arts, we are engaged in a collective effort to make something visible, audible, indeed legible…’. 

Where she would make the case for art, I make the case for politics and for the politics of the European Union. Can more be done in certain areas? Of course it can and that is why I will continue to pursue the objectives in my work plan with zeal and determination. But not because I feel frustrated by the perceived limitations of the structures I am working within but, through my first-hand experience of the results these structures can deliver.

We need to continue building on the momentum, coordination and innovation shown to date in this crisis.

And we will.