3
remains significant, it appears less serious than previously. Nonetheless, adjustment to the
high interest rate environment could prove challenging and uncertainty remains high, given
Russia’s ongoing war against Ukraine. Upside risks to inflation remain largely linked to
developments in energy markets – whereby we must remain vigilant as regards the future
evolution of energy prices. In 2024 in particular, upside risks to inflation prevail, as wage
growth could settle at above-average rates for a sustained period.
The medium-term challenges facing the European economy have not abated. Economic
challenges that were evident prior to the pandemic, including the need to strengthen potential
growth, to accelerate the twin transition in a fair way and to improve resilience, coupled with
demographic developments, will increase the demands on public finances in the medium
term. These challenges have highlighted the importance of social cohesion and resilience, as
targeted by the European Pillar of Social Rights. In this context, fiscal policies should aim at
preserving debt sustainability as well as raising growth potential in a sustainable and
inclusive manner, thus also facilitating the task of monetary policy. Maintaining a high level
of public investment, while reducing debt-to-GDP ratios in a sustained manner, reinforces the
need to prioritise expenditure and build fiscal buffers. Taking a longer perspective, the last
decade has been characterised by major shocks, notably the economic and financial crisis, the
COVID-19 crisis, the Russian invasion of Ukraine and the ensuing energy crisis and surge in
inflation. This uncertainty means that fiscal policy will need to remain agile going forward.
3. State of play of the economic governance review
The Commission published its orientations for a reform of the economic governance
framework in November 2022 after an extensive consultation process. The reform
orientations build on the Commission’s experience with and analysis of the implementation
of the framework before the pandemic, as well the lessons drawn from the EU’s response to
the pandemic. It also takes account of the outcome of a public consultation that was
relaunched in October 2021, involving a wide range of stakeholders including Member
States, the other EU institutions, social partners, citizens, and academia, amongst others. The
proposed revised framework seeks to strengthen debt sustainability and reduce high public
debt ratios while promoting sustainable and inclusive growth in all Member States. The key
objectives of the proposal are to improve national ownership, simplify the framework and
move towards a greater medium-term focus, combined with stronger and more coherent
enforcement. National medium-term fiscal-structural plans that integrate fiscal, reform and
investment objectives are the cornerstone of the revised framework. This will provide
Member States with greater leeway in setting their fiscal adjustment path, within a common
EU framework that would go hand-in-hand with stronger enforcement.
Discussions on the revised fiscal framework are progressing. The fiscal elements of the
proposal have been discussed at the Economic and Financial Committee, as well as at
ministerial level at the ECOFIN Council and, for issues specifically relevant to the euro area,
at the Eurogroup. The Commission has also discussed its orientations with the European
Parliament, the European Economic and Social Committee, the European Committee of the
Regions, and other stakeholders. The exchanges have focused on various issues, including: