Euro zone to support economy in 2022

 

Euro zone to support economy in 2022, use EU funds for investment. 

Euro zone governments should keep spending next year to help the post-pandemic recovery, though to different degrees depending on their debt level, and use cash from the EU's recovery fund to boost investment, the European Commission said on Wednesday.

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"For the euro area, we call for a moderately supportive fiscal stance for 2022, with a focus on investment, equipping workers with new skills and safeguarding the solvency of viable firms," European Economic Commissioner Paolo Gentiloni said. The Commission said 2022 would be the year when European countries switch from crisis response to helping the recovery, especially through money from the EU recovery fund, which will finance 24% of all recovery support measures.

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The Commission expects that governments would spend 40% of the grants component, totalling 338 billion euros, of the recovery fund next year. "The Recovery and Resilience Facility is now being implemented in 22 EU countries, which aim to spend around 40% of their total grant allocation in 2022 alone. Making a success of this will perhaps be the greatest challenge – and opportunity – for the coming year," Gentiloni told a news conference.

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The Commission noted, however, that the fiscal support should take into account the public debt level of each country and some, like Italy with its 160% of GDP of debt, should limit the government's current spending. The Commission said 12 euro zone countries had macroeconomic imbalances that needed an in-depth investigation, of which three -- in Cyprus, Greece and Italy -- were excessive.

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Apart from high debt in all three countries, Italy suffered from weak productivity growth, Greece had high unemployment, a lot of bad loans and low potential growth and Cyprus had bad loans and a large current account deficit. Europe's biggest utility Enel (ENEI.MI) will ramp up spending to 170 billion euros ($191 billion) this decade to fund its green power and networks businesses as it brings forward plans to become carbon-free by 2040.

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The group will spend 70 billion euros on renewable energy to almost triple capacity it directly owns to 129 gigawatts (GW) by 2030 and will spend the same amount on infrastructure and networks to boost the number of grid customers and electricity sales. Enel, one of the world's biggest green energy groups, will exit coal and gas generation by 2027 and 2040, respectively, replacing them with new green capacity and hybrid renewable-storage solutions. It will exit its gas retail business by 2040.

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"We will continue to grow in renewables, extracting value from what is already today the biggest private portfolio of renewable assets in the world," Chief Executive Francesco Starace said. Enel's gross renewable pipeline amounts to 371 GW. German utilities E.ON (EONGn.DE) and RWE (RWEG.DE) have also unveiled green spending plans, amid pressure to shift away from fossil fuels to limit global warming. read more

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Enel said it expected to raise 10 billion euros from asset sales in the course of the plan to 2024, of which 7 billion euros would be spent on organic growth. The utility could sell renewable assets in parts of the world where it did not have an integrated generation and distribution network to focus on its key markets such as Italy, Spain and the United States, Starace said. "The U.S. is a country where we should have an integrated position," Starace told the strategy presentation.

ELECTRIFYING CONSUMERS

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The group, which controls Spanish utility Endesa (ELE.MC), said it planned to attract 40 billion euros from third parties, taking total spending to 2030 to 210 billion euros. It said the investments would cut customer energy costs by 40% and help reduce carbon emissions by 80% by 2030. "We need to electrify end consumption as much as possible," Starace said.

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Enel's decision to ditch gas raises questions about the future of assets and clients managed by Endesa, Spain's second largest gas retailer with nearly 1.7 million customers. Enel's core earnings, excluding restructuring costs, are expected to rise 12% to 21.0 billion-21.6 billion euros in 2024. Some of Enel's short-term targets were trimmed compared to the previous plan, but the reductions were in line with market expectations, analysts said.

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Enel shares were up 1.6% by 1153 GMT, slightly outperforming a 0.5% rise in the European utility index (.SX6P). Net debt will rise to 61 billion-62 billion euros in 2024 from 53 billion-54 billion euros this year to help fund growth. The company will pay a fixed dividend that will increase by 13% up to 0.43 euros/share between 2021 and 2024. The company said this target was a "minimum going forward".