Members' Research Service By / February 20, 2023

Roundtable on the EU Economic and Budgetary Outlook for 2023

This edition’s special focus sheds light on the EU’s economic governance framework and its impending revision.

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Written by Marianna Pari with Radosław Kleina.

Providing an overview of the European Union’s economic and budgetary situation and challenges for 2023, a year with many unknowns, the publication of the European Parliamentary Research Service (EPRS) seventh annual ‘Economic and Budgetary Outlook for 2023‘, was the occasion for an online roundtable on 7 February 2023. This edition’s special focus sheds light on the EU’s economic governance framework and its impending revision.

Speaking at the event were Nicolae Ștefănuță (Renew, Romania), Member of the Committee on Budgets and rapporteur on the 2023 EU budget, Géraldine Mahieu, Director for Investment, growth and structural reforms at the European Commission’s Directorate‑General for Economic and Financial Affairs and Martin Larch, Head of the Secretariat of the European Fiscal Board. The event was hosted by Etienne Bassot, Director of the EPRS Members’ Research Service. Tim Peters, Head of the EPRS Budgetary Policies Unit, moderated a lively and insightful discussion on the EU’s economic governance framework, the revision of the multiannual financial framework (MFF) and the use of Recovery and Resilience Facility (RRF) funds.

Is the EU Budget fit for purpose?

In Nicolae Ștefănuță’s opinion, the current multi-annual EU budget is not fit for purpose and does not allow for an adequate response to considerable challenges, such as the Russian war of aggression against Ukraine and the ensuing cost for financial, military and humanitarian assistance as well as high energy prices and inflation. He underlined that a full revision of the MFF, and not merely a limited review, is therefore necessary. Mr Ștefănuță explained the political consequences for EU citizens of the lack of sufficient resources. Referring to the system of own resources, he expressed the opinion that an EU budget capped at around 1 % of the Union’s gross national income (GNI) was far from being sufficient, as already evidenced in the 1977 MacDougall Report.

How do NGEU and the RRF support the European economy?

Referring to the economic outlook for 2023, Géraldine Mahieu of the European Commission remarked that the EU economies had shown remarkable resilience over the past year. She took the audience through the reasons why, despite the Russian war of aggression against Ukraine and the ECB’s tight monetary regime, economic growth had turned out to be higher than initially expected. While this trend could continue in 2023, there are, however, great uncertainties.

Ms Mahieu explained the implementation of RFF funds in detail, standing at €142.3 billion, and the impact they are already having on the economy, not only through the investment component, but additionally through the reform measures included in the national plans. She underlined that acting together also enhanced convergence. According to Ms Mahieu, the total impact was estimated on average at a 1.3 % increase in gross domestic product (GDP), of which one third was the result of positive spill-over effects across Member States. In relation to the energy crisis, Ms Mahieu explained that a total of €270 billion remains available for the Member States for the REPowerEU programme, which aims to achieve independence from Russian fossil fuels while supporting the green transition. Such resources come on top of those already allocated to investment measures for the green transition as part of the agreed national recovery plans. Ms Mahieu pointed out that the experience of implementing the RFF had proved to be crucial in designing an urgent response to the energy crisis. With regard to the economic governance, the aim is to make this framework more simple, more transparent and effective, and increase Member States’ ownership.

Economic outlook for 2023 and economic governance review

The third panellist, Martin Larch provided the European Fiscal Board’s perspective. He explained why 2023 is a very particular year and how views diverge, depending whether we consider yearly or quarterly forecasts. Mr Larch pointed out that, even though from an annual perspective 2023 looks like a year of economic slowdown – based on quarterly data, it appears that the economic slowdown is already behind the EU, with most of the Member States returning to or exceeding pre-pandemic GDP levels. Mr Larch elaborated on how the fiscal response to the energy crisis has affected the terms and balance of trade with countries exporting energy to the EU. Mr Larch also pointed out that the attempt to compensate households for price increases clashes with the European Central Bank’s efforts to stifle inflation.

Focusing on Member States’ indebtedness and the applicable fiscal rules, Mr Larch went on to explain how EU countries are grouped according to their debt-to-GDP ratio, and therefore have varying capacity to overcome shocks and recover and provided insight into how that influences their position during Council discussions on fiscal rules. Continuing his reflections on the future of the economic governance framework Mr Larch pointed out the inherent risk of continuing to govern under unclear rules. In response to a question about the EU having a central fiscal capacity, Mr Larch noted that the European Fiscal Board supports this idea and added that, from a risk-sharing point of view, it would be desirable to have a larger common budget with the possibility of running a deficit when necessary. However, he acknowledged that that presented a political challenge.

During the Q&A session, Mr Ștefănuță evaluated the RRF instrument positively, but defended an enhanced role for the European Parliament, in particular in the scrutiny of expenditure. To ensure democratic legitimacy, the various off-budget instruments should be part of the EU budget, including the funding of a possible future ‘European Sovereignty Fund’. In the lively discussion that followed, Ms Mahieu underlined that the RRF is subject to the discharge procedure, that the European Parliament has been involved in the development of the RRF at several stages, and the continued dialogue and exchange of information between the Commission and Parliament. Ms Mahieu described the measures taken by the European Commission to verify that RRF funds were spent appropriately, including checks and audits of milestones and targets, and the publication of the largest recipients of RRF funds.She also explained the process to ensure that funds are effectively spent on the green and digital transformation.

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