Rapporteur:	Konstantinos DIAMANTOUROS
Co-rapporteur:	Javier DOZ ORRIT

Plenary Assembly decision	23.3.2023
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	5.10.2023
Adopted at plenary	25.10.2023
Outcome of vote (for/against/abstentions)	185/1/1

1.   Conclusions and recommendations

1.1.

The EESC notes that according to the latest Summer Economic Forecast, the European Commission (EC) has downgraded growth projections to 0,8 %, pointing to an increasingly challenging economic outlook.

1.2.

In this context, the EESC believes that monetary policy in the coming months should take care to strike the right balance between the need to continue to reduce inflation and the need to avoid excessively stalling growth and to contribute to public debt reduction plans.

1.3.

In view of the persistent inflation, the EESC believes that the social partners and governments should negotiate and agree on national income pacts to reduce inflation without undermining investment and growth, and that these pacts should be accompanied by targeted measures to support the vulnerable parts of the population.

1.4.

The EESC supports the EC proposal, included in the legislative package on the reform of the EU’s economic governance framework, which seeks to establish differentiated national paths to ensure sustainable public finances through fiscal and structural plans based on compromises negotiated between European and national authorities. Nevertheless, the Committee considers that national ownership of these commitments requires greater involvement of national parliaments and local and regional authorities, as well as the participation of the social partners and civil society organisations in formal consultation processes.

1.5.

The EESC welcomes the fact that the eurozone banking system has proven to be resilient in the wake of the recent financial turmoil in the USA and in Crédit Suisse. The role of the Single Supervisory Mechanism (SSM) as a single supervisor has been significant in this respect. At the same time, the EESC expresses its concern regarding the fact that approximately 18 % of banking assets in the eurozone are not currently supervised by the SSM.

1.6.

In view of the EU’s deteriorating global competitiveness, the EESC welcomes the Green Deal Industrial Plan, which seeks to speed up the permitting process for a certain set of technologies crucial for the green transition. While this is a step in the right direction, the EESC believes that the fast-track procedure should not focus solely on specific technologies (and therefore indirectly pick winners) but should apply to all sectors of the economy.

1.7.

Concerning the relaxation of state aid rules, the EESC acknowledges its political necessity in the short run with a view to preserving strategic industrial investments in the EU, but is convinced that it represents a threat to the internal market. As such, it regrets that the EC did not propose a European Sovereignty Fund in its latest mid-term review of the Multiannual Financial Framework.

2.   Background

2.1.

The EU economy has proven to be resilient; it grew more than expected in 2022 — by 3,5 % — and according to all projections it will avoid a recession in 2023. Nevertheless, according to the Summer Economic Forecast, the EU’s economic outlook is deteriorating with growth now projected down to 0,8 % from 1 %. At the same time, eurozone inflation is expected to be slighter lower in 2023 (5,6 % instead of 5,8 %) and is projected to be marginally higher in 2024 (2,9 % instead of 2,8 %). According to the European Commission (EC), unemployment in the eurozone fell to a historic low of 6,4 % in July2023.

2.2.

During its September meeting, the governing council of the European Central Bank (ECB) decided to increase interest rates by 0,25 %, bringing the base rate for main refinancing operations to 4,5 %, and explained that it considers current interest rates to be at the right level to bring down inflation close to the official target of 2 %. While inflation is clearly on a downward path — from 9,2 % in December 2022 to 6,1 % in May 2023 in the euro area — inflation of food prices remains very high: 13,6 % in May (16 % in December 2022).

2.3.

Energy prices have continued to decline across Europe, largely driven by a significant drop in gas prices in the Title Transfer Facility natural gas futures stock market. As a matter of comparison, gas prices are currently trading around EUR 35 per MWh, while in August 2022 they were above EUR 300 per MWh.

2.4.

The energy crisis of 2022 prompted calls for a reform of the rules regarding the internal market for electricity. On 14 March, the EC published its proposals aimed at making electricity bills less dependent on fossil fuel prices by creating a buffer between short-term markets and the electricity bills paid by consumers. According to the EC, this will be done by incentivising longer-term contracts (in particular purchase agreements), stabilising electricity prices and curbing excessive revenues of energy producers by requiring the use of two-way contracts for difference for new investments in low carbon generation where public funding is needed, and by improving the forward electricity markets.

2.5.

On 1 February 2023, the European Commission also published a Green Deal Industrial Plan (1) aimed at boosting industrial competitiveness, which has eroded considerably in recent years as a result of high energy prices, significant regulatory burden and subsidy schemes across the Atlantic aimed at attracting value chains crucial for the green transition. The Green Deal Industrial Plan is based on four pillars: it aims to speed up permitting procedures for clean tech and critical raw materials, allow better access to finance by relaxing state aid rules, boost green industrial skills and promote resilient supply chains.

2.6.

On 26 April 2023, the European Commission published its long-awaited proposal for reform of the Stability and Growth Pact (2). The proposed new rules strive to strike a balance between, on the one hand, greater ownership by governments of the achievement of fiscally sustainable positions through targeted four-year national medium-term fiscal-structural plans (which can be extended for a maximum of three years by common agreement between a Member State and the European Commission to ensure a more gradual debt reduction) and, on the other, creating a more credible enforcement regime that is crucial for maintaining the credibility of the euro.

2.7.

Moreover, in recent months, there has been significant turmoil in the banking sector with the collapse of the Silicon Valley Bank in California in March 2023. Since then, two additional regional banks have gone bankrupt in the USA, i.e. Signature Bank and First Republic Bank. The financial turmoil also spread to Europe, which saw the collapse of a major financial institution, Credit Suisse. Both crises have been managed, highlighting the importance of speed in containing the risk of contagion and the loss of confidence by investors and depositors in case of banks’ crises. The ECB, as a single supervisory authority for most of the eurozone’s ‘significant’ financial institutions, has been key in this regard.

2.8.

Finally, it is worth noting that, according to Eurostat data, the EU shifted from having a trade surplus of over EUR 200 billion in 2020 to a record deficit of EUR 432 billion in 2022, due to remarkable changes in trade balances at global level and, in particular, to a steep rise in the value of energy imports (3). The EU trade balance then improved in the first quarter of 2023, mainly driven by the significant decrease in energy prices, achieving a deficit of just EUR 2 billion in the first quarter of 2023 (4). Nevertheless, a profound reflection is needed on how to strengthen the most solid and sustainable factors of the European economy’s productivity and competitiveness.

3.   General comments

3.1.

The EESC welcomes the more positive economic outlook. The EU has experienced a double shock in 2021-2022 linked to Russia’s unprovoked war in Ukraine and a severe energy crisis. During this period, the EU and national governments have mobilised unprecedented resources to support businesses and consumers to deal with high energy prices. The more positive economic outlook shows that the unprecedented government support managed to shield Europe’s economy from a significant downturn, while protecting vulnerable households from excessively high bills.

3.2.

The ECB has taken decisive action to reduce core inflation, raising interest rates and reducing the money supply. Although inflation is now on a downward path, it remains high and is eroding people’s real purchasing power. At the same time, recent data suggest that the eurozone has entered a technical recession. In the Committee’s view, monetary policy in the coming months should take care to strike the right balance between the need to continue to reduce inflation and the need to avoid excessively stalling growth and to contribute to public debt reduction plans. In this context, the EESC believes that the social partners and governments should negotiate and agree on national income pacts to reduce inflation without undermining investment and growth, and that these pacts should be accompanied by targeted measures to support the vulnerable parts of the population. This is especially relevant in light of the recent OECD data which suggest that average real wages decreased by 3,8 % in 2022 (5). This should be combined with efforts to boost productivity in the EU which remains low.

3.3.

At the same time, the EESC supports the statement of the ECB President that governments should gradually roll back the support measures and gradually return to fiscally sustainable positions. However, it believes that targeted measures should remain in place, both to maintain investment levels — including more efficient and faster use of all European funds — and to help low-income citizens deal with the impact of inflation, as they are the ones who feel it the most.

3.4.

Given that about 70 % of business finance comes from banks, with largely undeveloped capital markets and a strong SME sector, banks will be the source of much, if not most, of the green and digital financing in Europe. In light of Europe’s huge investment needs over the coming decades, the EESC believes that it is critical that we keep working to complete the Capital Markets Union. In the meantime, for an economy so dependent on bank financing, securitisation needs to play a more significant role in connecting the real economy to the capital markets and in freeing up banks’ balance sheets so that they can step up the amount of money lent.

3.5.

The EESC concurs with the European Court of Auditors’ assessment that the current legislation has not yet produced the anticipated recovery of the European securitisation market and has not helped banks to increase their lending capacity, which would benefit SMEs among other players. The securitisation market should be improved by effective controls and supervision so as to prevent the resurgence of systemic risks. Today, Europe’s securitisation market (including the UK) is about 6 % the size of its counterpart in the US, representing about 1 % of GDP compared to 18 % in the USA.

3.6.

On 26 April, the European Commission published the legislative package on the reform of the EU’s economic governance framework and the fiscal rules that make up the Stability and Growth Pact. The EESC’s position on the European Commission’s proposal will be reflected in the opinion on ‘New economic governance rules fit for the future’ (6), the draft of which welcomes the establishment of differentiated national paths to ensure sustainable public finances through fiscal and structural plans based on compromises negotiated between European and national authorities. The EESC considers that national ownership of these commitments, as part of a more democratic understanding of EU economic governance, requires greater involvement of national parliaments and local and regional authorities, as well as the participation of the social partners and civil society organisations in formal consultation processes, in line with the views set out in previous Committee resolutions and opinions (7). The EESC attaches great importance to the ECB’s recent opinion on economic governance reform (8), particularly its views on the EU’s permanent fiscal capacity and on the DSA methodology (9) which should be specified in consultation with, and supported by, the Member States.

3.7.

The EESC also welcomes that policymakers at the EU level are putting competitiveness back on the agenda. Even before the war in Ukraine and the severe energy crisis, the EU had already been losing competitiveness vis-à-vis its main competitors. According to Organisation for Economic Cooperation and Development (OECD) data, foreign direct investment (FDI) fell in the EU by 68 % in 2021 compared to 2019, while at the same FDI in the USA increased by 60 % by 2021. The EESC points out that an improvement in investment, increased productivity and enhanced competitiveness across the EU should be based on targeted investments, R & D, innovation and continuous training in favour of workers. This is particularly important for Europe’s SMEs, which represent 70 % of EU employment and are disproportionately affected by red tape, high taxes and difficulties in accessing capital.

3.8.

While energy prices have fallen significantly, they remain twice as a high as pre-covid levels and four times higher than in the USA. At the same time, the mounting regulatory burden on companies, combined with the pull factor created by the generous subsidies of the Inflation Reduction Act (IRA), is threatening the EU’s ability to attract the investments needed for the green transition. While the EESC disagrees with the protectionist elements of the IRA, which exclude EU manufacturers and are incompatible with WTO rules, it does acknowledge the fact that targeted incentives can play an important role to attract and boost investments.

3.9.

The Green Deal Industrial Plan does provide a positive first step (10). Via the Net-Zero Industry Act (NZIA), it attempts to speed up often very lengthy procedures for investment projects that are crucial for green investment, such as batteries, solar panels, electrolysers, and carbon capture, storage and usage. More specifically, the NZIA introduces time limits on the permit-granting processes for net-zero manufacturing projects related to their size and status.

3.10.

While this is definitely a step in the right direction, the EESC notes that investment projects in the EU often face lengthy delays due to the inability of authorities to approve Environmental Impact Assessments on time and judicial appeals against projects by local communities. As such, it has doubts as to whether the NZIA as proposed can actually speed up investments in Europe at a time when investments across the Atlantic are booming. It is worth noting that, only in 2022, companies announced investment in the US of USD 73 billion in batteries alone. The EESC believes that organised civil society can play a role in fostering social acceptance of green investments, which is a pre-requisite for the success of the green transition. Moreover, the EESC believes that the fast-track procedure should not focus solely on specific technologies (and therefore indirectly pick winners) but should apply to all sectors of the economy.

3.11.

To be able to somehow match the financial incentives provided by the IRA and in order to promote the objectives of the Green Deal Industrial Plan, the European Commission relaxed state aid rules via the Temporary Crisis and Transition Framework, which increases the maximum amounts of state aid that can be granted and introduces for the first time the possibility of investments in capital of fixed assets — CapEx. At the same, given that the ability of Member States to grant state aid varies significantly, the European Commission has allowed Member States to make use of the RRF and ESIFs to promote projects under the NZIA.

3.12.

While the EESC acknowledges the short-term necessity of such a move to avoid losing significant investments in Europe, it believes that in the long term a relaxation of state aid rules represents a threat to the integrity of the single market. And while the ability to use the RRF and ESIFs is welcome, it notes that most governments have already designed their programmes and has doubts about the extent to which smaller Member States will be able to offer sufficient incentives to companies.

3.13.

In this context, the EESC regrets that the latest mid-term review of the MFF does not include financing for the creation of an EU Sovereignty Fund aimed at promoting investments in the green transition across the EU while at the same time creating a level playing field and ensuring proper functioning of the single market. And while STEP (11) does represent a positive development, the EESC considers it an inadequate response to the challenge facing the EU, which proposes to use resources from other existing EU funds. This proposal has postponed the launch of the EU Sovereignty Fund that had been announced by the Commission. In any case, the EESC once again calls on Member States to ensure a meaningful process of consultation with organised civil society when they revise their Recovery and Resilience Plan with the addition of a RePower chapter.

3.14.

Concerning the Critical Raw Materials Act (12), the EESC welcomes the intention to simplify the permitting process for selected raw materials in the EU in order to be able to exploit the reserves available domestically more efficiently and avoid overdependence on single countries abroad. Furthermore, it strongly supports the push to diversify supply chains through the conclusion of trade agreements with reliable partners. Given that 85 % of worldwide growth is expected to come from outside the EU in the coming decade, it is important to strengthen trade with global partners and find new export markets for European goods, which in turn will offer governments new opportunities for domestic investments to boost productivity and social and education spending. Both effective work within the WTO and the long-awaited conclusion of the EU-Mercosur agreement could prove beneficial in this respect.

3.15.

In addition to the legislative proposals to boost competitiveness, the President of the European Commission has also announced her intention to reduce the reporting burden on companies by 25 %, and to introduce a competitiveness check on all new proposals. This is a welcome development that needs to be followed up with concrete actions to, on the one hand, help companies deal with multiplication of environmental, social and governance reporting that companies will be faced with in the coming years due to legislation on the CSRD (13), CSDDD (14), Taxonomy (15) and Forced Labour (16) and, on the other hand, to ensure that future legislative proposals take the impact on the EUs competitiveness into account more without forgetting to improve the conditions of workers in line with the European Pillar of Social Rights.

3.16.

Concerning the reform of the internal market for electricity, the EESC welcomes the proposal and stresses the need for a framework that can ensure affordable and predictable prices, even though it remains uncertain whether the proposal will be able to really mitigate the risk of sustained high prices in the future.

3.17.

Finally, the EESC expresses its concern about the lack of supervision by the ECB of around 18 % of the European banking assets. This lack of transparency and uniform application of supervision across the EU are potential sources of uncertainty in the eyes of investors and of contagion to the rest of the financial industry. The EESC supports the Commission’s recent comprehensive initiative to complete the bank crisis management and deposit insurance (CMDI) legal framework, since advancing the banking union is a key step to strengthening the European single market in the interest of citizens and businesses.

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(1)  COM(2023) 62 final.

(2)  COM(2023) 242 final.

(3)  Highest ever EU trade deficit recorded in 2022, Eurostat.

(4)  EU trade balance deficit returns almost to zero, Eurostat.

(5)  OECD countries average. See https://www.oecd.org/newsroom/oecd-job-markets-remain-tight-though-inflation-is-hitting-real-wages.htm

(6)  Opinion of the European Economic and Social Committee on the proposal for a Regulation of the European Parliament and of the Council on the effective coordination of economic policies and multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97 (COM(2023) 240 final — 2023/0138 (COD)), the proposal for a Council Regulation amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (COM(2023) 241 final — 2023/0137 (CNS)) and the proposal for a Council Directive amending Directive 2011/85/EU on requirements for budgetary frameworks of the Member States (COM(2023) 242 final — 2023/0136 (NLE)) (OJ C, C/2023/880, 8.12.2023, ELI: http://data.europa.eu/eli/C/2023/880/oj).

(7)   OJ C 323, 26.8.2022, p. 1 and OJ C 228, 29.6.2023, p. 1.

(8)   OJ C 290, 18.8.2023, p. 17.

(9)  DSA = Debt sustainability analysis.

(10)  The EESC is also in the process of adopting two specific opinions on this subject: Green Deal Industrial Plan (OJ C 349, 29.9.2023, p. 179), and Industrial Policy as an instrument to reduce dependencies and boost an EU market for green products in the resource and energy-intensive industries (REIIs), not yet published.

(11)  Strategic Technologies for Europe Platform (europa.eu).

(12)   OJ C 220, 9.6.2021, p. 118.

(13)   OJ L 322, 16.12.2022, p. 15.

(14)  COM(2022) 71 final.

(15)   OJ L 198, 22.6.2020, p. 13.

(16)  COM(2022) 453 final.