Uncertainty has become the new norm in the global economy. The situation in the Middle East is affecting international markets on a daily basis, disrupting economic balances and creating new challenges for Europe.
Just consider what has happened over the past ten days. Brent crude oil approached $118 a barrel. It then fell to $94 as hopes grew for a diplomatic solution to the war.
All these sharp fluctuations have taken place while, if you think about it, the situation in the Strait of Hormuz has remained largely unchanged.
Markets can change direction from one day to the next. But families cannot adjust their household budgets at the same speed. And it is their concerns that must guide our decision making.
European natural gas prices remain roughly three times their pre-war levels, while inflation in the euro area reached 4% in October. Underlying inflation has remained stable so far, but sustained pressure on energy prices calls for continued vigilance.
Despite the current headwinds, the European economy has demonstrated considerable resilience. Labour markets remain strong, and the euro area now has greater experience and stronger tools to respond to crises.
Resilience, however, is a strength. It is not a guarantee. We must remain cautious, coordinate our policies and stand ready to support those most affected by the disruptions.
Support, as we often repeat, must be targeted and temporary, so that it reaches those who genuinely need it. At the same time, our challenge is to safeguard fiscal stability and preserve the capacity of our economies to invest and grow.
It was against this backdrop that we began today’s Eurogroup meeting. We reviewed the latest economic developments and exchanged views on the recent G7 discussions in Bangkok, particularly concerning the global economy and macroeconomic imbalances.
We also discussed the fiscal outlook, ahead of the European Commission’s assessment of the draft budgetary plans for 2027.
Sound public finances are a priority because they constitute our shield against crises. They give us the capacity to protect our citizens without compromising their security and prosperity.
Especially in times of crisis, every euro counts. Every euro of public spending must deliver real value.
And this principle, I would add, is particularly important in an area where Europe is being called upon to invest more than ever before: defence.
This was why the second major item on today’s agenda was defence financing, which we discussed with NATO Secretary General Mark Rutte and with the participation of non-euro area finance ministers.
In this regard, our message was clear: Europe must take responsibility for its own security. Emerging threats require greater and sustained investment. Defence spending is rising and will need to remain at elevated levels in the years ahead.
This puts further strain on already tight public finances. We have already activated the national escape clause, providing Member States with additional fiscal flexibility until 2028. But we must also gradually adapt our budgets and ensure sustainable financing.
When security becomes more expensive, coordination becomes absolutely indispensable. Today, many European countries procure similar defence equipment separately. Economies of scale are not at the levels they should be, costs rise, and the ability of Europe’s defence industry to expand its productive capacity is thus constrained.
When Europe invests together, we save resources and multiply our effectiveness and strength. With exactly this in mind, our discussion focused on four priorities.
First, more joint European procurement. Better prices, less duplication, a stronger defence industry and more resilient supply chains. European financing instruments can make a meaningful contribution to this effort.
Second, greater investment in research and new technologies. Europe needs greater technological autonomy in certain critical areas. These investments can also strengthen innovation, competitiveness and the overall productive capacity of our economies.
Third, continued support for Ukraine and stronger cooperation between the European and Ukrainian defence industries. Ukraine’s security is directly linked to the security of Europe as a whole.
Fourth, mobilising more private capital, with particular emphasis on start-ups and small and medium-sized enterprises developing innovative defence technologies.
As we often repeat, Europe has the resources, the expertise and the industrial strength. What matters now is to bring these strengths together.
Because, ultimately, what we are called upon to protect is everything our citizens actually take for granted. Their peace, their freedom and their security. And on these, there can be no compromise.
We also discussed progress on the digital euro. Negotiations between the Council and the European Parliament are entering their final stage, with the aim of reaching an agreement by the end of the year.
In parallel, we examined the European Central Bank’s Pontes and Appia initiatives. Pontes aims to connect existing Eurosystem infrastructure with distributed ledger technologies, while Appia explores the longer-term development of new financial transaction infrastructures.
The future of money is already starting to take form, in fact it is the present. And Europe is determined to play a leading role in shaping it.
The digital euro and the Eurosystem’s new infrastructure represent important steps towards safer, faster and more efficient payments, while also strengthening Europe’s strategic autonomy.
We then heard from the heads of the Single Supervisory Mechanism and the Single Resolution Board on the outlook for the banking sector.
Artificial intelligence and digitalisation are transforming the financial sector at unprecedented speed and scale. They offer opportunities for better services and greater efficiency, but they also bring new risks to cybersecurity and the operational resilience of banks.
The more digital our economy becomes, the stronger its protection must be. Further progress towards completing the Banking Union remains essential to reducing fragmentation and strengthening financial stability.
We plan to return to these issues next year, following the European Commission’s forthcoming legislative proposals.
Finally, I gave an update on the process of filling three positions on the Executive Board of the European Central Bank.
Following Christine Lagarde’s announcement that she will step down on 7 February, the nomination process has begun in coordination with the President of the European Council.
Two candidates with extensive experience and international standing have been put forward: Pablo Hernández de Cos of Spain and Klaas Knot of the Netherlands.
In parallel, the position held by Isabel Schnabel, who will step down on 4 January, and that of Philip Lane, whose term ends in late May, will also need to be filled.
It is possible that all three appointments will be considered together at the level of European leaders, in order to facilitate consensus.
The final decision of course rests with the European Council.
Ladies and gentlemen,
Today’s discussions covered, as already described, a wide range of issues: the economy, defence, the future of payments and the stability of our financial system.
Yet they all share one common purpose: ensuring that Europe can respond to the needs of its citizens, even in the most challenging circumstances.
Our citizens expect us to be prepared for the next crisis, not for the previous one. But they also expect decisions today that will make their lives more secure, protect their incomes and open up new opportunities for their children.
That is our goal. That is our mandate. And that is what we will continue working towards.
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