Remarks by Paschal Donohoe following the Eurogroup meeting of 13 February 2023

Today we began with a presentation on energy market developments led by Mr. Christian Zinglersen, the director of the European Union Agency for the Cooperation of Energy Regulators (ACER). As we are all aware, energy market developments have been the key driver of so much of what has happened in the Eurogroup over the last 18 months.

What has happened with energy prices matters so much for households, firms, inflation, growth, monetary policy and for our budgets. Monitoring these developments very closely is very valuable. And Director Zinglersen gave us a clear overview of what the year could bring. Compared to last summer, energy prices have come down significantly and the most pessimistic forecasts have not materialised. However, prices do remain at high levels. More broadly, risks clearly remain and have to be monitored very closely and there is no room at all for complacency. Developments with regard to demand and storage have been reassuring, but we need to continue with our efforts to diversify our energy sources and reduce energy consumption.

We then turned to the situation in the euro area with regard to labour markets. We know the very strong resilience they have shown in recent years, despite the many crises that we have experienced. Last year was a really positive year in terms of employment growth. Unemployment reached a record low in November. While this year is likely to be more challenging, we can feel positive about this foundation.

The euro area has turned into an employment powerhouse in a few short years. A particular focus for us therefore was monitoring trends in nominal wages which, combined with muted economic growth, could potentially undermine some of the good labour market performance. We need a balance between compensating the most vulnerable for the loss of purchasing power and overall wage increases so that inflation growth is not fuelled. This is not entirely in our hands because these processes are obviously led by workers, employers and their representatives. But so far decisions that have been taken have been measured, and this is something that needs to continue.

Building on the energy and employment discussions, we then ended the meeting with an overall stocktake of economic and financial developments, drawing on the Commission’s new forecast, which I know Paolo will speak about in a moment. And while the economic outlook remains challenging, the euro area economy is getting through this winter in much better shape than some had originally feared. While growth may be down, we are not looking at a recession as a central scenario, and collectively we had a realistic reappraisal of where we are now. There is caution, but there is also more confidence.

With the economy showing its resilience, employment holding up and energy prices coming down, we now have a short window of opportunity to reappraise and evaluate our budgetary policies, in particular, as ministers take stock and make decisions regarding their individual energy support measures at a national level. We need to look at having in place a level of budgetary support that reflects changes that we expect to happen with regard to the price of energy and the general level of inflation. This is important in order to reduce the overall budgetary cost and to achieve an appropriate fiscal stance while protecting the most vulnerable and maintaining incentives for the green transition.

The Eurogroup will continue our role with regard to the coordination of economic policies, and this will be one of the main topics at our next meeting in March.