Eurogroup: Inflation pressure is temporary but economic recovery on hold

ECB’s Lagarde believes inflation pressure in Eurozone is temporary but Eurogroup finds that economic recovery is on hold. Further work will support economic recovery, improve the banking system and make progress on digital currency and green finance issues.

At the Eurogroup meeting, chaired by President of the Eurogroup and Irish Minister for Finance, Paschal Donohoe T.D., euro area Finance Ministers agreed on their work programme* for the second half of the year. This is Minister Donohoe’s second work programme since he was elected President of the Eurogroup in July 2020, and builds on the work he has done over the past ten months.

Eurogroup prepares policies for economic recovery

The Eurogroup has been at the forefront of the joint response to the unprecedented economic shock of the COVID-19 pandemic and it will continue to play a key role in the euro area in identifying, coordinating and implementing the policies that will deliver a robust, inclusive, and sustainable recovery. The Eurogroup’s work programme until December 2021 reflects this and a number of other priority policy areas, including in banking, digital currencies and green finance. Ireland is at the forefront of decisions that shape the European economy, while Minister Donohoe holds the Eurogroup Presidency and chairs the Eurogroup meetings.

President Donohoe & Eurogroup agree work programme for remainder of 2021

“We will also strive to improve the European banking system, by building on our agreement, last November, on the reform of the European Stability Mechanism and the early introduction of a common backstop to the Single Resolution Fund, we will continue to pursue the goals of deepening the Economic and Monetary Union and completing the Banking Union.

Paschal Donohoe, Eurogroup President and Irish Minister for Finance

“We will also continue to make progress on how to best pursue the opportunities brought by the green and digital transition, including the potential development of a digital euro. We will remain flexible to address emerging or evolving issues, particularly in relation to the pandemic.”

Paschal Donohoe, Eurogroup President and Irish Minister for Finance

The dividend of these unprecedented policy measures is beginning to be seen, with the European Commission’s Spring 2021 Forecast (published 12th May) demonstrating clear signs of recovery in the European economy. There has been significant upward revision to growth prospects, with +4.2% growth now expected for the EU in 2021 (instead of the +3.8% predicted in the Winter Forecast) and a return to pre-pandemic levels of output earlier than envisaged next year. Ireland’s growth is forecast to be slightly above average, at +4.6% in 2021.

Eurogroup Head Donohoe: Prospects for Eurozone are improving

The improved outlook reflects global prospects, the effective European economic response and signs of economic recovery. Also it reflects the accelerated momentum of the vaccine roll-out which has been crucial in helping economic confidence.

The EU, through coordinated action, has been at the forefront of the campaign to deliver vaccines for all, with Ireland in line with the EU norm of one third of the adult population now vaccinated.

We are in a far better place now than in recent months.

The economic recovery is gaining momentum as economies re-open and as Recovery and Resilience Facility (RRF) funds come on stream. The phased re-opening of Ireland’s economy is reflected in the falling Pandemic Unemployment Payment (PUP) figures indications. People are returning to work in large numbers. This week there were 13,498 fewer people in receipt of the PUP compared to last week and a further almost 26,000 closing their claims in the past week.

Christine Lagarde finds inflation pressure as temporary

It’s far too early and it’s actually unnecessary to debate longer-term issues. Our focus in June is going to be on favourable financing conditions for the economy at large and to all sectors.

Christine Lagarde, ECB President

Lagarde says too early to discuss life after emergency support

We are committed to preserving favourable financing conditions using the PEPP envelope, and to do so until at least March 2022.

Christine Lagarde, ECB President

The RRF will also drive transformative changes in the structure of our economies, making them greener and more digital. Ireland’s National Recovery and Resilience Plan will be submitted to the European Commission next week.

President of the Eurogroup and Minister for Finance Paschal Donohoe welcomed the agreement on the work programme today, saying:

‘Strengthening the euro area economy is essential for the recovery and the return to a sustainable growth path. Through our high-level discussions, it is my priority to ensure that the Eurogroup remains a forum for promoting common understanding on challenges and defining appropriate policies for the euro area. As such, we will continue to regularly monitor macroeconomic, fiscal and corporate sector developments and hold discussions on structural reforms. Europe’s recovery will be Ireland’s recovery’.

Eurogroup eudebates economic recovery