Managing Director's Opening Remarks for Press Conference following the June 2023 Eurogroup Meeting
June 16, 2023
Good morning and a warm welcome to everyone.
We are here today to share our economic assessment for the euro area. Before I start however, let me share a few thoughts on the EU Parliament’s adoption of the Artificial Intelligence Act.
It is very encouraging to see the EU putting the groundbreaking technology of Artificial Intelligence at the forefront of its policy agenda. AI has enormous promise and potential, but we must make sure that it works for all, and that the use of AI is safe. In that sense, we welcome the approval of the AI Act by the European Parliament.
Now let me focus on the excellent discussion with the Eurogroup yesterday chaired by President Donohoe, and I would like to highlight a few our key messages.
First, the Euro Area economy has shown remarkable resilience in the aftermath of Russia’s invasion of Ukraine and in the face of the largest trade loss in decades. This is a testament to the decisive and timely policy efforts by Euro Area leaders.
Yet, the economy slipped into a mild technical recession in early 2023 and economic activity will only pick up very gradually going forward. Inflation has started to decline from historically high levels, but is still well above target. And, uncertainty remains elevated, with risks are skewed to the downside for growth and to the upside for inflation.
Therefore, the top near-term policy priority is to keep bringing inflation down to target, while preserving financial stability. How do we do that?
First, monetary policy should continue to tighten and then remain in restrictive territory for a period, to keep inflation expectations firmly anchored.
Second, the current economic conditions also warrant a tight fiscal policy stance over 2023-24 which would reduce overall demand, lessen the upward pressure on interest rates, and thus help lower the risk of financial market disruptions.
Third, on the financial stability side, while the banking system appears to be resilient at the aggregate, the tightening in financial conditions can expose vulnerabilities. Supervisors should continue to assess banks’ exposures to interest rate, funding, liquidity, and credit risks—including those related to real estate.
Anchoring financial stability in the Euro Area also requires strengthening its financial architecture. This includes faithfully implementing Basel III and making meaningful progress on the Banking and Capital Markets Unions.
In addition, I would like to emphasize the importance of a swift agreement on the EU economic governance reform to anchor fiscal policy as early as of 2025 and ensure that member states’ public debt is on a firmly sustainable path.
Looking further ahead, Euro Area leaders must continue to make strides in creating the conditions for a greener, stronger, and more resilient economy. As part of these efforts, structural policies should deliver on the EU’s ambitious green transition and energy security plans, which are indeed mutually reinforcing goals. In this context, subsidies should be deployed carefully, targeted to areas with the greatest climate benefits. Progress with the Capital Markets Union is also key here, as it will help mobilize funding in the EU for innovation and green transition.
Finally, timely implementation of the Recovery and Resilience Plans would not only help boost resilience and growth but would also help the EU achieve its green objectives much faster.
The Euro Area economy has shown considerable agility and resilience in the face of great challenges. By pursuing the right economic policy and with continued collaboration and strong solidarity, the Euro Area can build forward better, creating an economy that is more resilient, sustainable, and inclusive.
Thank you.