Dáil Éireann Debate, Thursday - 22 September 2022
150. Deputy Richard Bruton asked the Minister for Finance the scale of the impact that rising energy prices will have on the balance of international payments in European Union Member States; the implication that this will have on public policy; the strategies that are being debated by the Euro-Group; and if he will make a statement on the matter. [46331/22]
View answerThe step-change in energy prices on foot of Russia’s invasion of Ukraine has resulted in a ‘terms-of-trade’ shock, which has seen import bills rise across EU and euro area Member States. In effect, this has resulted in a transfer of domestic incomes from net energy importing countries to net energy exporting countries, leading to a deterioration in the current account balance in a number of Member States.
The latest euro area current account data are for the first quarter of the year, so only capture the initial impact of rising energy prices on foot of the onset of the war in Ukraine. The ECB data show the euro area current account surplus at €217 billion (1.7 per cent of euro area GDP) in the first quarter, down from €301 billion (2.6 per cent of euro area GDP) a year earlier.
The latest ECB macroeconomic projections point to a continued deterioration in the euro area terms of trade and trade balance due to rising energy prices. For the euro area, the ECB forecast a current account deficit 0.3 per cent of GDP in 2022 and 0.5 per cent of GDP in 2023. The balance becomes positive in 2024 with a current account surplus of 0.1 per cent of GDP. In contrast, while Ireland’s surplus is expected to moderate over the coming years, it is still expected to remain in surplus over the medium-term.
Close monitoring and coordination of the broad range of fiscal and financial policies in the euro area is essential. Implementing effective, sustainable policies in a concerted manner to mitigate the impact of the war on the euro area economy and support the recovery requires intense policy dialogue and coordination. As such, the Finance Ministers of the euro area are intervening to support vulnerable households and businesses in facing this unprecedented price shock.
We have two priorities in our collective response. Firstly, policy interventions should focus on income transfers that are exceptional and, where possible, temporary and targeted. We will aim to avoid competitive tax reductions within the euro area. Secondly, we commit to avoiding a wage-price ‘spiral’. Similarly, super levels of profitability should not be enjoyed by some while many are suffering the economic consequences of war. We stand ready to coordinate closely and look forward to the Commission proposals in this regard.
In this context, the Eurogroup is committed to regular discussions on macro-economic developments and policy prospects, including rising inflation and energy prices. Overall, the Eurogroup will aim to maintain sufficient flexibility in order to ensure swift reactions to future and unexpected developments, and will include any unforeseen issues on Eurogroup agendas, as they arise.
