Good afternoon, ladies and gentlemen.
It is a pleasure to join you today for the 2026 edition of the DG ECFIN fiscal policy workshop.
I could not join you this morning, since plans change and I had to be in London.
But I know that you already had good discussions this morning and there is still more to come later today.
I hope that, as in previous years, todays workshop will facilitate a constructive dialogue on the most pressing challenges facing public finances.
The theme of the workshop, “Adapting public finances to emerging spending needs”, could not be more timely.
Today, I would like to share with you my reflections on the implications our changing and challenging world will have on our public finances.
Let me begin by exploring the economic context in which todays discussions are taking place.
Considering all the recent shocks, the EU economy has proven to be remarkably resilient.
Growth is projected to be 1.4% this year and 1.5% next year.
The labour market is foreseen to stay strong.
And inflation is set to stabilise at around 2%.
So, this is better than it could be.
But it is certainly not as good as it should be.
A potential growth rate of just 1.3% is just not satisfactory.
It reflects that productivity growth has been on a long-term decline.
It is now much lower than other major economies of the world.
Obviously, this has an impact on our public finances, as lower growth rates limit fiscal space going forward.
Moreover, while public debt ratios have declined from their pandemic peaks, they remain high, and well above pre-crisis levels in many Member States.
Adding to this already challenging baseline is the fact that we are faced with new and permanent spending needs.
Let me briefly highlight three areas.
First, improving our competitiveness, as well as the transition towards a decarbonised and digital economy will require a significant mobilisation of both private and public investment.
Second, faced with serious security threats, we must take more responsibility for our own defence.
Third, our ageing population is already adding pressure on social and health spending.
This brings me to the central question of todays workshop: How do we reconcile the need for fiscal sustainability with the imperative to strengthen our security and fund the future?
The answer lies not only in how much we spend, but also in how we spend it.
We must be focused on the qualitative, in addition to the quantitative.
Over the past five years, fiscal policy has played a decisive role in stabilising and supporting Europes responses to one crisis after another.
During the COVID-19 pandemic and the energy crisis, coordinated fiscal action protected households and businesses, preserved productive capacity and avoided long-lasting damage.
However, we have now moved beyond that phase.
And there is still work to be done to roll back some of the support measures that should have been temporary.
Ensuring that governments are able to achieve policy priorities when fiscal space is more limited requires a stronger emphasis on reprioritisation and the efficiency of public spending.
This means shifting resources towards emerging priorities which may require scaling back some other expenditure items.
In view of current challenges, priority should be given to spending with a positive impact on competitiveness and growth.
Such reallocation may be easier if it is accompanied by efforts to enhance the effectiveness and efficiency of spending.
This can help governments free up resources while preserving the quality of public services.
Finally, of course, we also need to look at the revenue side.
Is there scope for better tax structures, for instance by broadening tax bases or reducing the negative impact on growth – so moving taxation towards tax bases less detrimental to growth?
Taken together, these different dimensions define the core challenge facing fiscal policy today.
It has also never been more important to make the best use of available EU funds.
And for EU and national budgets to complement and reinforce each other.
Many of the spending needs we face today, from defence to energy security, represent European public goods.
The experience of previous years has demonstrated that EU-level instruments can play a decisive role in complementing national budgets and supporting structural transformation.
At the same time, public action alone will not be enough to meet Europes investment needs.
Mobilising private investment is vital.
Well-designed public instruments can act as a catalyst in crowding-in private capital.
The Recovery and Resilience Facility is a case in point.
By combining reforms and investments within a coherent framework, the RRF is helping to sustain public investment at a time when national fiscal space has been under severe pressure.
This year marks the final phase of the RRF.
This means that cohesion funding will play an increasingly important role in driving investment in the years to come.
The adage of “spending better, together” is particularly crucial in the area of defence.
NATO members have committed to a new target of investing 5% of GDP annually on core defence and security related spending, up from 2% of GDP previously.
The way these resources are spent will be crucial for their economic impact.
In particular, spending on equipment and innovation can have positive and lasting effects on growth via the development and diffusion of new technologies.
This positive effect would be larger, quite obviously, if spending were to be targeted at European Research & Development, infrastructure, and production, and rely less on imports.
In this context, coordinated action at EU level is needed.
Fragmented national approaches would prove both costly and ineffective.
Increasing joint demand for defence equipment through joint procurement will help strengthen European industrial base for defence and lead to economies of scale.
The European Commission has provided important financial levers for Member States.
These include the Security Action for Europe, or SAFE instrument, through which the EU budget will provide up to €150 billion in loans to Member States to support defence investments.
19 Member States have submitted their National Defence Investments Plans to access funding under SAFE.
And 16 of those plans have already been assessed positively by the Commission.
Moreover, Member States can benefit from temporary flexibility under the EU fiscal framework for defence expenditure.
While this flexibility has avoided the need for governments to make immediate difficult policy choices, it is now important that the period of flexibility is used well to reprioritise budgets and the prepare for a structurally higher level of defence spending.
The EUs new fiscal framework was in fact designed to help strike the right balance between accommodating higher expenditure in new and urgent priorities, while preserving debt sustainability.
By limiting the growth rate of public expenditure, the new framework encourages Member States to adopt a more efficient use of public resources.
It empowers Member States by allowing for the extension of adjustment periods by up to seven years, if they commit to reforms and investments that enhance growth and address our common priorities.
This helps to protect growth-enhancing expenditure and provides incentives to respond to new spending priorities, even in a context of fiscal tightening.
Moreover, the framework is providing additional, well-targeted flexibility in exceptional circumstances.
The activation of the National Escape Clause by 17 Member States is a clear illustration of this approach.
All these features make the reformed fiscal framework well suited to deal with the many challenges we are facing today.
To conclude, ladies and gentlemen.
Europes fiscal future will be shaped by some tough policy choices.
Adapting our public finances to emerging spending needs is no longer an abstract concept.
It is, rather, a very concrete and pressing policy challenge for the here and now.
Todays workshop offers an excellent opportunity to explore these issues in depth.
I am confident that it will provide valuable insights on how we can best shape fiscal policy in Europe in the years ahead.
With that, I would like to thank you for your participation today.
I wish you all an engaging and productive continuation of the workshop.
Thank you.