European Union

Amid rising rates of mental health issues and a lack of access, primarily due to financial limitations, the Italian government has proposed a bonus to fund psychological therapy be included in the country’s annual decree-law, Health Minister Roberto Speranza told...

The EU on Monday (14 February) stood by its refusal to lift patent protections on Covid vaccines, just days ahead of a summit with African Union countries who see the issue as a priority.

NATO defence ministers are expected this week to set in motion a plan that could establish four multinational battlegroups in southeastern Europe in response to Russia's military build-up in Ukraine, three diplomats said.

Russia held the door open Monday (14 February) to further talks on resolving its standoff with the West and said some of its military drills were ending, signalling a possible easing of the crisis over Ukraine.

The European Commission said it has plans to handle the fallout from a conflict in Ukraine. "There is nothing specific and detailed that we can share beforehand, just that we will be ready for anything," said a commission spokesperson, who added that the EU executive's plans covered a scenario involving a significant number of refugees. EU member states Poland, Slovakia, Hungary and Romania border Ukraine.

Russia's envoy to the EU, Vladimir Chizhov has changed his line on new Russian military intervention in Ukraine. Russia would attack if "they start blatantly killing Russian citizens anywhere - Donbas [east Ukraine]," Chizhov told The Guardian on Monday. "Russia has never said it intends to do that [protect Russians abroad] by military means," Chizhov told EUobserver when asked, in December, what might trigger a fresh Russian incursion in Ukraine.

In a sign the plan has a measure of momentum, Senegal's interior minister has given a "green light for technical discussions," the European Commission confirmed.

EU states rehearse how to handle a cyber-strike on hospitals and power plants by a Russian-style adversary.

Wednesday's court ruling could be a victory for EU attempts to ensure member states abide by basic legal standards. And it would hugely ramp up political pressure on the EU Commission to act.

Democratic Western countries should not make things even more difficult for Ukraine - a constant high-level diplomatic presence there would be a true show of solidarity.

Parliament commemorated the 20th anniversary of the circulation of the first euro notes and coins on Monday, at the opening of the plenary session in Strasbourg.
Committee on Economic and Monetary Affairs

Source : © European Union, 2022 - EP

Parliament commemorated the 20th anniversary of the circulation of the first euro notes and coins on Monday, at the opening of the plenary session in Strasbourg.
Committee on Economic and Monetary Affairs

Source : © European Union, 2022 - EP

The final meeting of the fourth European Citizens’ Panel took place on 11-13 February 2022 in Maastricht, the Netherlands.

Source : © European Union, 2022 - EP

The final meeting of the fourth European Citizens’ Panel took place on 11-13 February 2022 in Maastricht, the Netherlands.

Source : © European Union, 2022 - EP

President Metsola expressed Parliament’s solidarity with the people of Ukraine, at the opening of the session.

Source : © European Union, 2022 - EP

President Metsola expressed Parliament’s solidarity with the people of Ukraine, at the opening of the session.

Source : © European Union, 2022 - EP

Written by Angelos Delivorias.

On 8 February 2022, participants in this online roundtable assessed the current economic and budgetary state of the European Union and its potential evolution in the coming years. Anthony Teasdale, Director‑General of EPRS, welcomed a panel of distinguished guests: Pedro Silva Pereira, Vice-President of the European Parliament, Karlo Ressler, Rapporteur on the 2022 EU Budget for the European Parliament Committee on Budgets (via video), Isabel Vansteenkiste, Director General for International and European Relations at the European Central Bank (ECB); Alfred Kammer, Director of the European Department of the International Monetary Fund (IMF); Maria Demertzis, Deputy Director of the Bruegel think tank, Director of the EPRS Members Research Service, Etienne Bassot, and Alessandro D’Alfonso, head of the EPRS Next Generation EU (NGEU) monitoring service. The event was moderated by Lasse Boehm, head of the EPRS Economic Policies Unit.

‘How strong is Europe’s economic recovery?’ The European Parliamentary Research Service (EPRS) put this very topical question to participants during this event promoting the sixth edition of its flagship publication, the EPRS ‘Economic and Budgetary Outlook for 2022‘.

Anthony Teasdale, Director-General of EPRS, welcomed a prestigious panel of participants: Pedro Silva Pereira (S&D, Portugal), Vice-President of the European Parliament, Karlo Ressler (EPP, Croatia), Rapporteur on the 2022 EU Budget for the European Parliament Committee on Budgets, Isabel Vansteenkiste, Director General for International and European Relations at the European Central Bank (ECB); Alfred Kammer, Director of the European Department of the International Monetary Fund (IMF), Maria Demertzis, Deputy Director of the Bruegel think tank, Director of the EPRS Members Research Service, Etienne Bassot, and Alessandro D’Alfonso, head of the EPRS NGEU monitoring service.

Anthony Teasdale opened the event and introduced the EPRS flagship annual publication, the ‘Economic and Budgetary Outlook‘, now in its sixth year and the focus for this event. The publication offers an overview of the economic and budgetary situation in the EU and beyond, and summarises the main economic indicators in the EU and euro area and their two-year trends. In addition, it analyses the EU annual budget and its headings for 2022, all within the wider budgetary context of the EU’s post-2020 multiannual financial framework (MFF) and the Next Generation EU (NGEU) recovery fund. A ‘focus’ chapter highlights some aspects of the ongoing economic recovery –fiscal and monetary matters, labour issues and environmental choices – and aims to give a flavour of the discussion expected in the coming months.

Post-pandemic outlook

Vice-President Silva Pereira noted that the figures for 2021 were good, and going forward, are expected to be positive, although growth is projected to slow. However, he pointed out that, just like a year ago, while projections may be optimistic, emerging events such as new coronavirus variants (such as Delta and Omicron in 2021) could have an impact. The Vice-President’s first point therefore was that the pandemic must be monitored, as the outlook depends on its development. Vice-President Silva Pereira also noted that the EU currently also faces other crucial challenges, such as inflation generally – and high energy prices specifically – as well as supply chain issues. He also welcomed the optimistic signs on the employment front with positive figures in evidence, in many cases thanks to the measures taken by the Member States and the EU. In this context, he warned against the early withdrawal of important supporting instruments currently in place.

At the same time, Vice-President Silva Pereira stressed, it is important to acknowledge that the current recovery is uneven across sectors and Member States and that the EU needs to take this into account, as inequalities could constitute a major challenge going forward. There is also the question of the health of public finances, where deficit and debt have significantly increased in countering the pandemic, and may challenge the transition to ‘normalcy’ (end of the general escape clause) in the short-to-medium term. Some advocate a return to prudent fiscal policies, and inflation leads the ECB to think about moving towards a less expansionary monetary policy. In this context, it is important to get both the fiscal and monetary timing and their mix right. Moreover, investment is crucial for the recovery, and if countries with better economic and fiscal situation invest, the spill over effects might help everyone. Another challenge comes from the budgetary front and the own resources decision, where an effective implementation of own resources must be ensured. A proposal is on the table, but there is a long way to go between proposal and adoption.

Concluding, Vice-President Silva Pereira spoke about the ongoing debate on the economic governance review, where several proposals have been made by various stakeholders on what kind of revisions to perform, and whether to conclude the review before or after the general escape clause ends. In this context, he noted that, while the euro is still a work in progress and necessitates rules, attention must also be paid to completing the architecture of the economic and monetary union (EMU).

European Parliament priorities in financing the post-pandemic recovery

The floor was then passed to Karlo Ressler, Rapporteur for the 2022 EU budget. Although not available to attend in person, Mr Ressler provided a pre-recorded video made for and played during the event.

In his message, Mr Ressler shared insights into the challenges of the recent budgetary negotiations. The circumstances caused by the pandemic were not favourable. Mr Ressler explained that the European Parliament clearly stated its priorities from the beginning of the process. Its aim was to support recovery from the pandemic, boost green and digital investment, support young people in education and student mobility, and strengthen Europe’s capacity to face global challenges, beyond the existing EU goals. Negotiations with the Council were difficult and lengthy, as positions diverged regarding the budget allocations and the interpretation of the own resources decision concerning the repayment of NGEU interests. Parliament succeeded in reaching a satisfactory agreement on the 2022 budget, reinforcing the areas where there is greatest added value for EU citizens. The budget increased by almost €500 million, beyond the Commission’s proposals for priority programmes (Erasmus+, Horizon Europe, Asylum, migration and integration fund, single market and others). The 2022 EU budget was also significantly reinforced by NGEU funds.

European Central Bank perspective

Following Mr Ressler’s intervention, moderator Lasse Boehm, head of the EPRS Economic Policies Unit invited ECB Director General Isabel Vansteenkiste to set the scene from the ECB perspective.

Isabel Vansteenkiste first spoke about the current conjuncture and then adopted a broader perspective. According to her, the developments are positive – the economy bounced back swiftly – however, the recovery is not yet complete. Indeed, if we extrapolate the trend in GDP growth since 2014, a gap remains to be covered. Moreover, sectors have recovered unevenly: the manufacturing sector reached its pre-pandemic levels (although supply constraints persist), but the service sector still has some way to go, partly due to the slowdown in activity due to the Omicron variant.

Turning to inflation, Isabel Vansteenkiste noted that surprise increases continue, as the harmonised index of consumer prices (HICP) has reached over 5 % in the euro area. In this context, she noted that these surprises relate both to sectors where prices increased, as well as to the speed of that increase. Isabel Vansteenkiste noted that energy price inflation is an important factor in overall inflation, but even when excluded, HICP has risen due to a variety of other factors, including the pandemic (e.g. air fares, where ticket prices were very low at the onset of the pandemic, and are now significantly higher), and imported elements, such as supply chain bottlenecks. She noted that the ECB expects inflation to fall by the end of the year, but underlined the important role of energy prices, which in turn depend on geopolitics.

Looking back, the ECB Director General noted that there were some positive indications, given that some fears have not materialised. One of these was in the corporate sector, where significant bankruptcies were expected. This did not happen – to the contrary, the number of bankruptcies is lower than normal, due to the policy measures introduced to fight the pandemic. At the same time, she noted that the high debt accumulated by companies may stifle investment and constitute a break in the necessary digital and climate transitions going forward. Another threat that did not materialise to the extent expected, was labour market scarring. Labour markets recovered much faster than expected, in large part due to the job retention schemes put in place during the pandemic. Nonetheless, she noted that there are signs of mismatch in the labour markets (Beveridge curve), which could create challenges, and therefore need to be monitored.

Going forward, the ECB Director General noted the importance of long-term reform, such as reducing the tax bias against equity finance for example. She further noted that the twin (digital and climate) transition may need further sectoral reskilling and reallocation. Focusing on the green transition, she noted that the investment needs in this area are significant, and not yet met, and she was of the view that if fighting climate change is a public good, the discussion of the economic governance report should take this into consideration. There should be a discussion about pooling resources at EU level (e.g., a climate fund) to meet those needs.

International Monetary Fund perspective

Based on new data published recently by the IMF, as well as feedback from a consultation, IMF Director Alfred Kammer noted that the EU has recovered rapidly, thanks to forceful policies supporting disposable incomes, maintaining worker-firm links, preventing mass bankruptcy and ensuring credit flow. In this context, the euro area should exceed its pre-crisis output by 2025. At the same time, the recovery remains uneven: it has been slower in Member States with a high labour percentage in contact-intensive service sectors. This could lead to GDP growth divergence between EU countries, as well as increase inequalities. In this context, he praised the role the NGEU could play in preventing further divergences.

Alfred Kammer went on to note that while fiscal policy is still supportive, fiscal support becomes more and more targeted. Once the expansion is more firmly entrenched (possibly by the end of 2022), the Member States should start consolidating their finances, while remaining flexible regarding the possibility for more accommodation in case of further adverse impacts to their economies.

Regarding the labour market, Alfred Kammer underlined that, while the labour market has tightened, slack remains. Moreover, the large labour reallocation needs going forward call for bold policies (reskilling and upskilling workers), and for the protection of vulnerable groups (enhanced safety nets). With regards to the EU architecture, there is a need to reform EU fiscal rules and complete the financial single market (i.e. the Banking Union and the Capital Markets Union (CMU)). Lastly, with regards to climate change, the NGEU is an important step towards ‘Fit for 55’, but more is needed (as the necessary investment amounts to 1 % of GDP per year, while for the moment Member States are expected (in their plans) to invest around 0.2 %). A central investment fund in this context is meaningful, as is private investment. For the latter, Alfred Kammer stressed the importance of carbon pricing and environment, social and corporate governance (ESG) indicators.

The think tank view

Deputy Director of the Bruegel think tank, Maria Demertzis first focused on inflation, noting that we have forgotten how to think about inflation, since the last time inflation risks were important was 20 years ago. Inflation in 2021 was mainly driven by supply-side factors, which central banks cannot do much about. As a result, and while this may not help the average consumer facing higher prices, she is of the view that, for the moment, central banks should not react. At the same time, she noted that there are indications of second round effects (supply side problems become demand side problems, e.g. wage inflation), and here, central banks cando something. However, Maria Demertzis remarked that even that is not without problems: increasing interest rates will have effects on Member State borrowing capacity, which can lead to financial fragmentation. While preventing financial fragmentation is not the ECB’s primary objective, she noted that it nevertheless cannot remain indifferent to this problem.

Concluding, Bruegel’s Deputy Director remarked that, to sustain the recovery and avoid introducing risks, the fiscal side must play a central role. In this context, it is very important to rethink the fiscal rules and to pool resources. In this latter case, the NGEU is of primary importance, but the EU should also consider other initiatives, such as the climate-related funds already mentioned.

Inflation perspectives

In the lively discussion that followed, Alfred Kammer pointed out that the data show that inflation is currently provoked by an exogenous shock (energy), but that second round effects can be dangerous. In contrast to the EU situation, US consumer price inflation is driven by durable goods and is very broad based (including automobile price inflation).

Isabel Vansteenkiste reminded participants that inflation was not a worry up to last year, but is indeed a concern today. She also noted the importance of inflation expectations, which are closely monitored. With regards to Maria Demertzis’ reference in non-industrial goods inflation, she noted that this is also closely monitored. With regards to wage growth, the ECB Director General noted that further wage growth should be expected, but, at the same time, those numbers must be adjusted for productivity.

Medium- to long-term outlook

Regarding the medium-to long-term outlook, Maria Demertzis’ view is that the main problem going forward is striking a balance between the investment demands necessary for the twin transition and debt sustainability, which ought to be at the core of EU policies. In this context, she noted the important role played by the NGEU as well as of joint pooling for the twin transition. On this point, Alfred Kammer highlighted that the NGEU is scheduled to end around 2025, while EU countries should continue to invest until at least 2030. In this context, he reiterated that it is very important to create a ‘central capacity’ at EU level for public investment, as climate is a public good. He also noted, however, that the public sector cannot bear the burden of climate adaptation alone – the private sector should help. He is of the view that incentives must be provided, and noted the importance of carbon pricing and the ESG disclosure standards in this context. Isabel Vansteenkiste agreed, and noted that, whether we want it or not, climate change is happening – it is our choice whether we suffer the costs of its impact, or counter it through the policies we adopt – and economics points towards adopting policies.

Next Generation EU and the Recovery and Resilience Fund

The discussion then turned to the NGEU and the RRF. The moderator passed the floor to Alessandro D’Alfonso, head of the newly-created NGEU monitoring service (NEXT) at EPRS. Alessandro D’Alfonso noted that 2022 was the first year of deployment of the RRF. Most plans are up and running and it is now time to deliver. The milestones and targets to be met average 20 per week. While not all results will be immediately visible due to the multiannual nature of many measures, it is important to make sure that they are followed through, to ensure the results. In his view, NGEU can be summarised in three key words:

• investment: (major challenges in the areas of the green and digital transitions and inclusion that require significant investments). The 2008‑2009 global financial crisis and the ensuing EU economic and sovereign debt crises triggered an investment gap in the EU, which persisted for a long time. A repeat of that situation should be avoided, given the challenges to address. He also noted that, during the current crisis, the level of public investment in the EU has increased, including with the contribution of the NGEU recovery instrument;
• impact: while the EU budget is relatively small, it is nevertheless an investment budget. Moreover, NGEU doubles its size in 2022 and in the following years. In addition, to maximise their potential, NGEU combines those investments with structural reforms and aims to trigger additional private investment through InvestEU; and
• income: from 2028, or possibly earlier, the EU budget will have to repay the NGEU resources borrowed on the markets. This could reduce the future capacity of the EU to use its budget to invest in key priorities. To avoid that risk, the European Parliament has underlined that new own resources must finance the EU budget. Proposals are currently on the table, and these are crucial files in the context of a broader debate on the financing of European public goods.

The head of the EPRS NEXT service concluded by noting that NGEU is an important lever that can help EU towards meeting the many challenges of the digital and climate transitions and crisis resilience.

When asked by Lasse Boehm whether they think that the RRF is enough and whether more needs to be done about its governance, Maria Demertzis argued that much more is needed going forward. She agreed about the importance of structural reforms directed towards growth and climate adaptation and mitigation. Similarly, she noted the importance of future-proof fiscal rules and private investments. In this context, she was of the view that completion of the CMU is of central importance (given that more developed capital markets can attract greater public and private funding for transition), as is the coordination of fiscal and monetary policies. She also underlined the importance of own resources going forward, and argued that the European Parliament must involve citizens in the discussion, as own resources imply more taxes on citizens.

Isabel Vansteenkiste noted the importance of fiscal efforts, especially given that the natural rate of interest is still very low. She also noted that the lessons from NGEU should be taken into account when discussing the role of the European Semester and that the RRF could be a great blueprint. Alfred Kammer agreed on the importance of fiscal efforts, as fiscal policy can and should play a role in macroeconomic stabilisation. He also highlighted that the IMF has advocated in favour of a central fiscal capacity for the EU.

Regarding fiscal policy coordination, Maria Demertzis noted that, in the short term, managing fiscal policy needs to be coordinated in order to be counter-cyclical (i.e. being prudent in good times to create a buffer for bad times), and not pro-cyclical as was previously the case.

Closing the event, Director of the EPRS Members Research Service, Etienne Bassot, thanked the participants, and reminded the audience that the EPRS Economic and Budgetary Outlook, as well as a new EPRS series that analyses individual national recovery plans, are available to the public.

To watch the event, please click here.

Written by Clément Evroux.

Over the past decade, space has gained increasing importance as an economic sector offering opportunities for established and emerging markets.

Space policies and their applications have also gained in political relevance due to their capacity to tackle global challenges, such as the climate and biodiversity crises, but also due to the growing reliance of the EU economy and society on space infrastructure, services and data.

Pursuant to Article 189 of the Treaty on the Functioning of the European Union (TFEU), space is a shared competence of the EU and its Member States.

EU space policy has two overarching goals: on the one hand, promoting scientific and industrial competitiveness with a view to nurturing EU spatial ecosystems and ensuring EU autonomy in space; on the other, increasingly harnessing space investments and services to address key EU political priorities such as the European Green Deal and the Digital Decade.

This briefing focuses on the state of play in regard to the EU’s space economy, while also examining the EU’s reliance on space services. Specifically, it highlights the relevance of the EU in the global space market and looks at the ways the EU could boost its use of space data and services to deliver on its main political priorities.

Read the complete briefing on ‘EU space policy: Boosting EU competitiveness and accelerating the twin ecological and digital transition‘ in the Think Tank pages of the European Parliament.

We don’t know if a war will break out ‘at any moment’. But at such a dramatic juncture, it is worth having a look at the supreme commander on our side of the ranks.

Agriculture is one of the key focus areas of the partnership between the EU and the African Union (AU), with the EU’s focus being on facilitating a green transition in line with its Green Deal ambitions.