“The ECB is doing its part to tackle inflation, but fiscal policy must not contradict it”

Valdis Dombrovskis, vice president of the European Commission and head of the entire economic area, affirms that the current is a “critical” moment for the European Union. With the Russian invasion of Ukraine, the Twenty-seven are facing new economic, social and geopolitical challenges, the rising cost of living, sky-high energy prices and interest rates. The also Commissioner for Commerce, highlights the importance of coordination and following the compass set by the Community Executive to ensure the supply of energy as quickly as possible, guarantee a “fair” distribution of the costs of the crisis and align fiscal policies and monetary to face inflation.

In his office in Strasbourg, where he has presented the semi-annual evaluation of the budgets of the Twenty-seven in the European Parliament, Dombrovskis (Riga, Latvia, 1971), one of the most loquacious commissioners on the Kremlin’s aggression against Ukraine, reiterates the importance for the Union to continue supporting kyiv. With the arrival of winter and Moscow’s attacks on the Ukrainian energy infrastructure, the vice president of the Community Executive does not rule out a new wave of refugees towards the EU.

Ask. Is the Member States’ response to the crisis being coordinated?

Response. We have had talks with states before, especially on energy measures, because there is a statement from the euro zone that calls for targeted and temporary support measures. All the eurozone countries agreed with that statement, but if you look at the budget plan you see that 70% of the measures have not been directed or focused. So obviously there’s room to improve that guidance.

Q. Have the countries had political will?

R. The image is mixed. On the one hand, the eurozone states agreed on what should be done, but in practice we see that this is not entirely the case. In the midst of a complex situation it is not always possible to make perfect orientation tests of the support measures towards citizens and companies. Another element for which we insist that the measures be temporary and specific is the interaction between monetary and fiscal policy. The European Central Bank (ECB) is doing its part to tackle inflation, but fiscal policy must not contradict it. Therefore, we cannot opt for a general fiscal stimulus and that is why a better targeting of the measures is needed.

Q. In their diagnosis of Spain, they say that they support their budgets, although they raise some buts.

R. Our assessment that the plan is consistent with a fiscal guidance. The increase in current spending is below potential growth in the medium term. So from that point of view, we see that the plan is in line with our recommendation. However, at the same time, most of the measures do not appear to be targeted at households and businesses. So there’s still, I would say, room for improvement.

Q. At what point is the debate on US subsidies for electric cars and intermediate products, as part of the so-called inflation reduction law?

R. We have communicated our concerns [a EE UU], because several measures appear to be discriminatory. The requirements in the law for a number of sectors that have local content or local assembly, for example. We are in talks. We have created a US-EU working group to look at the matter, so we will have the opportunity to take stock on December 5, at the Trade and Technology Council. Now we are focusing on reaching a negotiated solution and we hope that we can achieve it, in any case we will have to take stock and consider what the next steps should be.

Q. Hungary has said it will veto Ukraine’s new support package of 18 billion euros in very long-term loans. Will it go ahead?

R. The measure was discussed in the Ecofin [el órgano que agrupa a los ministros de Finanzas de la UE], when the proposal was presented, and there was broad agreement among Member States on the need and urgency of providing this financial support to Ukraine. That is why our goal is to secure the first payments so that they arrive in January. Hungary was also on board although it raised some questions about how it would be done, so we are now working with Hungary and other states to address those questions and concerns and we hope to resolve them because we need to move fast.

Q. He says Ukraine urgently needs the money. You were in kyiv last week, where a good part of the population does not have gas, heating, electricity or water. Do you foresee a new wave of refugees to the EU?

R. I do not exclude it, because Russia is deliberately targeting civilian infrastructure and destroying Ukraine’s electrical infrastructure and other district heating facilities, and this creates a very difficult situation. We will provide assistance for the repair of equipment, but not only a matter of money. Destroyed equipment is not always immediately available for replacement. It is important that when we provide this financial backing, support is provided for these cases as well.

Q. Since Russia’s invasion of the Ukraine and the full-scale war, the European Commission has talked and tried to expedite agreements with other suppliers and business partners that it considers reliable. Within this framework and after Lula’s electoral victory in Brazil, do you think that the talks for the agreement with Mercosur could come back to the table?

R. The aggression against Ukraine has refocused free trade agreements and the understanding that we need to build ties with these trusted partners around the world. Regarding Mercosur, we intend to commit to the new Administration once it is fully established, to take stock and see if there is any prospect of moving forward with the agreement.