The situation is bad, but better than expected in autumn: German economic output is expected to grow by just 0.2 percent this year. Only in two of the 20 euro countries – Estonia and Latvia – is the development of the gross domestic product still walling off. This is based on the latest economic forecast by the EU Commission, which Economics Commissioner Paolo Gentiloni presented in Brussels on Monday. Sounds depressing, but in the fall the authorities assumed that German economic output would actually shrink.
The economists on the Commission are moving in step with their colleagues in the Federal Ministry of Economics. They also predicted a decline in gross domestic product in autumn, but are now expecting very slight growth. The third last place in the business cycle table also means an improvement compared to 2021: Two years ago, no other economy in the EU grew more slowly than Germany.
Behind the German malaise is that the export industry is very important and the dependence on Russian gas was very high. That is why Germany is suffering particularly from global supply chain problems and the capping of gas imports. The fact that Germany and the entire EU are now doing better than feared is due to the fact that gas prices have fallen and the storage facilities are quite full, explains the Commission. In addition, unemployment remains low and managers are more confident in company surveys.
The Commission therefore increased its growth forecast not only for Germany, but for the entire euro zone – from 0.3 percent for 2023, which was expected in autumn, to 0.9 percent. In 2022, however, the economy of the 20 euro countries had still grown by a strong 3.5 percent. Commissioner Gentiloni was therefore not in a jubilant mood: “Europeans are still facing difficult times,” said the former Italian prime minister. Inflation will also fall only gradually. His authority expects a rate of 5.6 percent in the current year and 2.5 percent in 2024 for the euro zone.
The Stability Pact comes into force again
Gentiloni also commented on the future of the Stability and Growth Pact, i.e. the rules for sound financial management. The Commission had suspended regulations at the start of the pandemic to allow EU governments to better help businesses and citizens. That pause was extended because of the Ukraine war, but Gentiloni now says he expects the pact to come back into force in early 2024.
Until then, the Commission wants to simplify the complicated and poorly enforced set of rules and make them more realistic. Gentiloni presented a draft in November; the EU finance ministers wanted to discuss this at their meeting in Brussels on Monday afternoon and Tuesday morning. In March, the heads of state and government are also to debate the pact at their summit. But if a reformed pact is really to come into force at the turn of the year, the Commission and the governments will have to agree on a concept very soon. Otherwise it would be difficult to complete the legislative changes in time.
Federal Finance Minister Christian Lindner warns, however, that it will still take a while before an agreement is reached: “We are at the beginning of intensive talks,” wrote the FDP chairman in a guest article in the ministerial meeting FAZ. He repeated his criticism of the Commission’s proposal that the authority should in future agree individual paths to debt reduction with highly indebted member states such as Italy. “There must be no special paths for individual states,” explained Lindner. As a compromise, he suggested that the stability pact could give states more time to reduce their liabilities to the target of 60 percent of economic output. In addition to this 60 percent for the debt level, the pact also sets an upper limit for the annual budget deficit of three percent of economic output. The reform would leave these targets, the so-called Maastricht criteria, untouched.
There is more money for start-ups
On the fringes of the ministerial meeting, the European Investment Bank (EIB) presented a new aid fund for start-ups. Germany, Spain, France, Italy and Belgium are initially providing the EU development bank with 3.25 billion euros, with the EIB contributing another half a billion. The fund, called “European Tech Champions Initiative,” passes the money on to private equity firms whose business model is to inject capital into young companies in exchange for shares in the company. The fund targets established start-ups that lack money to finance their global growth. So far, young European companies in this phase of development are often bought by rivals from America. The fund of the Luxembourg development bank should offer an alternative.