No sudden withdrawal of fiscal measures – Donohoe
The Minister for Finance has said there will be no sudden withdrawal of the fiscal stimulus measures put in place across Europe to deal with the Covid-19 pandemic.
Addressing the European Parliament’s Committee on Economic and Monetary Affairs in his role as President of the Eurogroup, Paschal Donohoe said it is important that finance ministers continue to debate and reach a common understanding on the appropriate budgetary stance by the summer.
“This can then serve as guidance for the preparation of draft plans in 2022,” he said.
“Let me be clear, this is not about the imminent withdrawal of fiscal stimulus.”
“We all agree that our immediate priority is to economically shield our citizens, in particular younger women and men and those most exposed to the crisis. There must be no cliff-edges.”
Mr Donohoe said the coronavirus crisis had taken its toll on lives and livelihoods and created the double challenge of limiting damage to employment and income as well as bringing about a sustainable and socially just recovery.
He described the measures adopted by the EU last year as “unprecedented” and added that they “emphasise the power of collective action”.
“European institutions and Member States reacted swiftly to mitigate the economic harm of the Covid-19 crisis,” he said.
“They have also rapidly prepared the ground for the recovery with an array of very strong initiatives.”
He said Europe has learned its lesson from the previous crisis, using its economic interdependence as a source of strength and acting together.
“This is something we should be proud of while of course being equally conscious of how much more remains to be done,” he added.
He said the resurgence of infections is impacting economic activity this year and economies will continue to have to be supported, in order to preserve income and employment, in particular in the most affected sectors.
“At the same time, compared to 2020, the economic outlook has improved,” he said.
“The roll-out of vaccines gives us reason to be more optimistic, but there is still some way to go.”
Mr Donohoe also cited the Brexit trade deal, a reduction in geopolitical tensions and the prospect of Recovery and Resilience Facility (RRF) funds reaching member states in the second half of this year as reasons for optimism.
He added that as progress is made in overcoming the health crisis, the focus of fiscal policy should be about how we can gradually shift from emergency support to supporting public investment “and to changes that can raise growth”.
“We need to coordinate our efforts for sound planning for the future so that when the time does come to adjust, we are prepared,” he claimed.
He said Eurogroup minsters would be cognisant that decisions they take on budgetary policy will have profound implications on how issues in relation to employment, the future viability of employers and the impact on their loans will be addressed.
“We also need to be mindful of the fact that the Covid-19 crisis is not only increasing the levels of public indebtedness, but is also exacerbating other “pre-existing” and so-called macroeconomic imbalances and creating new risks,” he added.