Eurogroup statement on draft budgetary plans for 2024

We welcome the Commission’s Communication and its Opinions on the member states’ draft budgetary plans (DBPs), published on 21 November, and underline the key importance of this exercise for the coordination of fiscal policy in the euro area.

The euro area economy has shown resilience in the face of large economic shocks over the last number of years, also reflecting a strong, coordinated, and timely policy response. After a strong recovery, growth momentum has slowed markedly this year, amid higher costs of living, weak external demand and as the effect of tightening monetary policy works its way through the economy. A gradual recovery in growth is expected for 2024, supported by a strong labour market and the continuing disinflationary process. Uncertainty and downside risks to the outlook have increased in recent months, primarily related to geopolitical tensions, including the volatility of the energy markets. Headline and core inflation are on a decreasing path, though core inflation remains more persistent. It is essential that inflation falls further and that inflation expectations remain well anchored. We will continue to monitor key determinants of inflation, associated risks and the consequences for our citizens and businesses.

Based on the Commission forecast, the euro area general government deficit is projected to continue declining from 3.6% of GDP in 2022 to 3.2% in 2023 and to just below 3% of GDP in 2024. Eight euro area Member States are projected to still have a deficit above the 3% of GDP Treaty reference value in 2023 and nine in 2024. Public debt in the euro area is expected to amount to around 90% of GDP in 2024, decreasing marginally compared to 2023, however notably below the peak in 2020, while remaining above the pre-COVID-19 crisis level.

The euro area fiscal stance has moved into contractionary territory in 2023, after three years of crisis-related expansion, which helped address the external shocks and protect vulnerable households and viable firms. The change in the fiscal stance has been necessary to underpin sustainable public finances and has supported monetary policy in its efforts towards restoring price stability. A further tightening in the euro area fiscal stance is expected for 2024, on the back of the phase out of most of the remaining energy support measures. The eventual size of the contractionary effect could be influenced by the possible measures taken by Germany in response to the ruling of its Constitutional Court.

While policies should remain agile in view of the prevailing uncertainty, an overall restrictive fiscal stance in the euro area for 2024 is appropriate, to enhance public finance sustainability and in order to avoid fuelling inflationary pressures. We welcome that investment is expected to increase across the euro area, contributing to sustainable growth and we underline the importance of ensuring the effective absorption of Recovery and Resilience Facility and other EU funds.

Coordinated and prudent fiscal policies remain essential beyond 2024. We remain fully committed to a strategy of determined, differentiated, gradual and realistic fiscal consolidation to strengthen fiscal sustainability, to rebuild fiscal buffers, to deliver higher sustainable growth and to boost the euro area’s resilience to future challenges including intergenerational equity. We will continue to pursue ambitious structural reforms and productive investments, including in areas of common priority, such as the green and digital transitions, as well as defence capabilities, financed through national and EU sources, including the Recovery and Resilience Facility.

We take note of the Commission assessment of the individual draft budgetary plans (DBPs), focusing on compliance with the Council recommendations on fiscal policy from July 2023, which included quantitative requirements with differentiated fiscal efforts as well as qualitative requirements, notably regarding the emergency energy support measures and preserving nationally financed investment.

We welcome that most euro area member states plan to wind down their energy support measures, absent renewed energy price shocks, and call on those member states expected to have significant measures still in force to phase them out as soon as possible in 2024. Moreover, member states should use the related savings to reduce government deficits. We also note the Commission’s intention to propose to the Council the opening of deficit-based Excessive Deficit Procedures in spring 2024 and we encourage member states with deficits above 3% of GDP to take the necessary measures.

The Eurogroup welcomes that the DBPs of Cyprus, Estonia, Greece, Spain, Ireland, Lithuania and Slovenia are in line with the fiscal recommendations of the Council based on the Commission assessment.

The Eurogroup notes that the DBPs of Austria, Germany, Italy, Luxembourg, Latvia, Malta, Netherlands, Portugal and Slovakia are broadly in line with the Council fiscal recommendations. The Eurogroup invites these member states to stand ready to take action as necessary. We also took note of the announcement of Germany that adjustments might be necessary to its budget plans and welcome its willingness to keep the Eurogroup informed.

We note that Spain, Slovakia and Luxembourg submitted DBPs on no-policy-change basis. We welcome that these countries will submit updated DBPs and look forward to the Commission assessment of those updates.

The Eurogroup notes that, based on the Commission assessment, the DBPs of Belgium, Finland, France and Croatia risk being not in line with the fiscal recommendation of the Council. The Eurogroup notes that fiscal policy in Belgium and France is nevertheless projected to be contractionary. The Eurogroup invites these member states to consider in a timely manner and as necessary to take action to address the risks identified by the Commission to ensure that fiscal policy is in line with the recommendations adopted by the Council and welcomes their commitment to follow-up as needed.

The Eurogroup remains focused on the long-term successful functioning of the Economic and Monetary Union. A revised economic governance framework is a key element in that regard, and we welcome the progress made in the discussions in the Council, with a view to concluding legislative work in 2023. The Eurogroup will continue to closely monitor economic and fiscal developments regularly and reinforce its policy coordination.