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Strengthening the Euro-Area. Financial and monetary challenges

  • Rome
  • 22 November 2023

        Taking on the financial and monetary challenges in reinforcing the eurozone is no easy task given the current scenario; an especially complex one for the countries of the Mediterranean region – Italy and Spain at the top of the list – who are obliged to seize the major opportunities offered by the plans of the Next Generation EU but, above all, to confront the scenario that shapes up once those plans have reached their full term.

        Particular attention is being dedicated to outlining new fiscal rules, precisely as the European Council deliberates the eurozone’s future economic governance framework. Defining that framework is not simple since it must take into account the numerous structural developments of recent years, with particular attention to both the globalization paradigm shift and rising geopolitical tensions. Changes that are capable of impacting significantly on the EU economic area, where foreign trade accounted for 54% of GDP in 2021, compared with the US’s 26%. This is the result of a major boost in the European economy’s receptivity, given that the same figure in 1999 was near 31%.

        Vulnerabilities emerge in various sectors – from direct foreign investments to finance and industry – combined with a more or less accentuated dependency on extra-European countries and the continent’s need for greater strategic autonomy. Not least for that reason, the various actors concerned, from governments to businesses, are centering their future plans on the need for diversification and greater control over value chains.

        Another trend in this regard is the need to shift attention from efficiency to security, especially as regards strategic sectors such as those associated with the ecological and digital transitions. Indeed, digitalization is putting pressure on various European industrial sectors that are seeing an increase in their distance from China and the United States, not least in terms of investment capacity. Similar pressure is being felt in financial spheres in relation to the market entry of tech giants, which is having an impact on more traditional players. The Old Continent is also suffering from the competitive disadvantages due to its lack of a true banking union. 

        From the monetary standpoint, the depth and speed of the changes underway raise fears of an even more volatile inflation that could have a serious impact on Europe’s future productivity; central banks, in particular, are wary of new external shocks.

        The financial and monetary policies the eurozone is deliberating are to be considered within both the institutional framework of the EU and of its future challenges, starting with the expansion of its borders and greater defense autonomy. Additional pressure comes from a large number of social issues, ranging from growing inequality to the ageing of the population to the migration influx.

        Confronting these challenges calls for effective regulation and efficient administration, accompanied by a long-range vision capable of ensuring member states’ economic growth and of maintaining – and possibly even increasing – the continent’s appeal. The pathway to successfully confronting this scenario remains that of the greater integration of the monetary union and capital markets. These are essential components of an effort leading to the development of instruments by which to finance European public goods and strengthen the community project.