“Growth forecasts will need to be revised downwards, even without falling into recession,” Joaquin Almunia, chairman of the board of the Center for European Policy Studies (CEPS) and a former European commissioner for economic and monetary affairs, tells Kathimerini, speaking of the need to ease fiscal policy in 2023 as well.
With the Ukrainian crisis in full swing, the Spanish economist believes that the EU needs to wait a bit longer before discussing reforms to the Growth and Stability Pact, while outlining the factors that will determine the magnitude of losses to the global economy and stressing that a tighter monetary policy demands even greater care over the matter of debt, especially for countries like Greece.
Almunia, who will be taking part in the Delphi Economic Forum running April 6-9, notes that after enhanced surveillance ends, Greece will have to assume “all the responsibilities.”
He also says that the transition to cleaner forms of energy needs to be accelerated despite the current difficulties.
How widespread will the damage to the European economy from developments in Ukraine be? Is there still time to save the growth rates we expected in 2022? Or will we likely see a recession in the period that follows?
It is difficult to have a precise estimate of the damages to the European economy. It depends of many factors: the duration of the war, the evolution of the energy markets, the monetary and fiscal policy reactions against inflation risks… But the growth forecasts will need to be revised downwards, even without falling into recession.
‘Concerning the debate about the reform of the Stability and Growth Pact, it will be difficult to come up with a fully fledged agreement in the coming months’
Meanwhile, this new crisis is pushing for an extension of the fiscal policy easing in the eurozone, where consultations on a possible change to the Stability Pact are pending either way. And this directly concerns Greece, which under normal circumstances would return to primary surpluses from 2023. Which direction do you recommend in the field of fiscal policy?
Given the circumstances, I consider it necessary not to come back to the enforcement of the fiscal rules at the end of 2022, as was expected before the war. Concerning the debate about the reform of the Stability and Growth Pact, it will be difficult to come up with a fully fledged agreement in the coming months, under the present uncertainties. The best option, in my view, is to adopt a flexible position until the situation becomes more stable and predictable. Going forward, in the medium term I will expect simpler rules, focused on the sustainability of the debt, allowing gradual adjustment paths, and better connected with the analysis of the conditions of the national economies.
How exposed are the economies of Southern Europe today to the impending rise in interest rates?
If the inflationary pressures continue, monetary policy stance will become gradually stricter, and interest rates in the debt markets will be tighter. Therefore, what is necessary is to define credible strategies for the consolidation of debt levels. This applies in particular to highly indebted economies.
You have evaluated the financial aid and adjustment program of the Greek economy for the European Stability Mechanism. Today, after the disruption of the pandemic, where would you focus attention concerning the interventions that Greece needs in order to become a more competitive and developed economy?
The reforms launched during the period of the [European Financial Stability Facility] and ESM programs must be continued and new initiatives will be welcomed now that the enhanced surveillance from the European Union institutions and the ESM will give way to a new period where the Greek authorities and the economic and social agents will assume all the responsibilities. Together with the reforms aimed at improving the economic resilience and social cohesion, both the public sector and private investors must prioritize investments to increase productivity and competitiveness levels.
Energy prices are extremely high. Do you consider the timing the EU chose to proceed with the green transition ideal?
The fight against climate change shall continue to be a priority. In these difficult times, it is necessary to support such a green transition, also as an instrument to increase our growth potential and our competitiveness. Indeed, the efforts required must be distributed in a fair way, even more in a period of economic difficulties affecting the weakest sectors of our societies.