"Off Course or On Track? The European Union Amidst Major Economic Challenges" - was the title of the event held on March 16 at the Bertelsmann Stiftung's Berlin premises. In his opening speech, Malte Zabel, Co-Director of the Europe's Future program, listed some of the current challenges facing Europe's economy: the current turmoil in the banking sector, supply chain problems, the economic consequences of the Russian war of aggression, the digital and green transformation, as well as outstanding "evergreens" such as the further development of the Single Market, the reform of the Stability and Growth Pact, and the completion of the Banking and Capital Markets Union.
"Off Course or On Track? The European Union Amidst Major Economic Challenges" - was the title of the event held on March 16 at the Bertelsmann Stiftung's Berlin premises. In his opening speech, Malte Zabel, Co-Director of the Europe's Future program, listed some of the current challenges facing Europe's economy: the current turmoil in the banking sector, supply chain problems, the economic consequences of the Russian war of aggression, the digital and green transformation, as well as outstanding "evergreens" such as the further development of the Single Market, the reform of the Stability and Growth Pact, and the completion of the Banking and Capital Markets Union.
Despite these immense, parallel challenges, Paschal Donohoe was optimistic in his keynote, drawing historical lines: Ireland, which this year celebrates the 50th anniversary of its EU membership, and Europe had repeatedly managed over the last century to overcome critical phases by making the right decisions and to get to the point where we are today: a united European Union with high approval ratings among the population. "Progress is always possible, especially in times of crisis," he concluded.
In a subsequent Fireside Chat, Katharina Gnath, head of our Europe's Economy project, spoke with the minister about the current economic situation, starting with the topic that is currently dominating the headlines: the bankruptcy of Silicon Valley Bank, the problems at Credit Suisse, and the potential impact on the eurozone. Donohoe was convinced of the effectiveness of the measures taken after the 2008 financial crisis. European banks are in a much better position today in terms of equity and liquidity than they were a few years ago. The rating agencies have also improved significantly. In this respect, the euro zone is safe, even if spillovers can never be completely ruled out. Immediately before the event, the European Central Bank had raised the key interest rate by 50 basis points, signaling that it considered the European banking sector to be robust.
Looking at the general state of the European economy, Donohoe attested to a high degree of resilience in the euro zone. Despite the after-effects of the pandemic and the shocks triggered by the war, forecasts for this year point to slight growth, and a severe recession has been successfully averted. Against this backdrop, some countries had already begun to slowly phase out their expansionary fiscal policies. Against this background, 2023 would be a year of transition before the requirements of the Stability and Growth Pact (SGP) take full effect again in the medium term.
With regard to the reform of the SGP, which was actually planned for this year, Donohoe conceded that there was not yet sufficient consensus among the member states. Nevertheless, efforts are being made at all levels to push the project forward as far as possible this year. He also said that there were currently no majorities for a permanent NextGenEU fund or a comparable new instrument to strengthen the resilience and investment power of the European economy. Before such a discussion could be held in earnest, he said, Europe would first have to demonstrate that it could successfully draw down and deploy the resources from the current fund, which have long been underutilized.
Finally, Donohoe and Gnath also reflected in their conversation on the European single market, which celebrates its 30th anniversary this year. In view of global geopolitical competition and the transition to a digital and sustainable economy, different instruments are needed today, especially those that promote investment, than they were a few decades ago. However, this should not lead to a fragmentation of the single market. The response to the U.S. Inflation Reduction Act as well as further European regulatory acts to promote green and digital NextGen innovations must be designed in such a way that fair competition prevails internally and no new imbalances arise in the single market.
Finally, Donohoe addressed the current narrative of a poly- or permacrisis, noting that the eurozone as a whole has recovered better from the pandemic than the United States or China. It is possible, he read, that more frequent and interconnected crises in the EU are also associated with more robust recoveries. It is too early to say whether this trend will continue. Nonetheless, Donohoe invited consideration of this optimistic counter-narrative to the permacrisis narrative.
Donohoe ended with the message with which he also began: optimism. The single market, he said, is an outstanding achievement, and the EU has all the strength it needs to develop it as today's times demand.
