Economic policy coordination: Commission sets out guidance to help tackle the energy crisis and make Europe greener and more digital

The Commission has launched the 2023 European Semester cycle of economic policy coordination. The package draws upon the Autumn 2022 Economic Forecast which showed that after a strong first half of the year, the EU economy has now entered a much more challenging phase. While swift and well-coordinated policy action during the COVID-19 pandemic is paying off, the fallout from Russia’s invasion of Ukraine confronts the EU with multiple and complex challenges. Historically high energy prices, high inflation rates, supply shortages, increased debt levels and rising borrowing costs are affecting business activity and eroding households’ purchasing power.

These challenges call for coordinated action to secure adequate and affordable energy supply, safeguard economic and financial stability, and protect vulnerable households and companies while preserving the sustainability of public finances. At the same time, rapid action is needed to boost potential growth and quality job creation and deliver on the green and digital transitions. Economic policy coordination through the European Semester will help Member States achieve these objectives by setting priorities and providing clear and well-coordinated policy guidance for the year to come.

This year’s Annual Sustainable Growth Survey puts forward an ambitious agenda to further strengthen coordinated EU policy responses to mitigate the negative impacts of energy shocks in the short term. At the same time, it is crucial to continue increasing social and economic resilience and fostering sustainable and inclusive growth in the medium term, while maintaining flexibility to tackle new challenges. This approach is in line with the UN Sustainable Development Goals, which are an integral part of the European Semester.

The four priorities under the European Semester remain: promoting environmental sustainability, productivity, fairness and macroeconomic stability, with a view to fostering competitive sustainability.

The Recovery and Resilience Facility, with a budget of €723.8 billion in grants and loans, is continuing to provide a steady stream of investments in European businesses, infrastructure, and skills, and is supporting an ambitious reform agenda until 2026. As of today, the Commission has endorsed 26 national Recovery and Resilience Plans, all of which have been approved by the Council. So far, payments disbursed under the Facility amount to over €135 billion. REPowerEU, the EU’s plan to rapidly phase out the EU’s dependence on Russian fossil fuels, will mobilise additional resources to increase the resilience of EU energy systems and prevent energy poverty through targeted investments and reforms.  The Commission assessed the consistency of the draft budgetary plans for 2023 with the Council Recommendations of July 2022. They take into account the continued application in 2023 of the general escape clause of the Stability and Growth Pact.

This recommendation presents tailored advice to euro area Member States for the period 2023–2024 on those topics that affect the functioning of the euro area as a whole.  Euro area Member States should:

• Continue to coordinate fiscal policies to support the timely return of inflation to the European Central Bank’s 2% medium-term target;
• Sustain a high level of public investment to foster social and economic resilience and support the green and digital transitions;
• Ensure that support provided to households and companies that come under financial stress because of the energy crisis is cost-effective, temporary, and targeted to vulnerable ones, in particular SMEs. In that respect, the recommendation suggests setting up a two-tier energy pricing system that ensures incentives for energy savings, replacing broad-based price measures. Under this system, vulnerable consumers could benefit from regulated prices.
• Foster wage developments that protect wage earners’ purchasing power, while limiting second-round effects on inflation. Develop and adapt social support system as needed.
• Further improve active labour market policies and address skills shortages.
• Ensure the effective involvement of social partners in policy-making and strengthen social dialogue.
• Further improve the business environment and preserve macro-financial stability.

Source: European Union