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MNI: Euro Ministers To Signal Tighter Fiscal Stance- Officials

(MNI) Brussels

Eurozone finance ministers are likely to signal a tighter fiscal stance for the bloc at a key meeting in July, offering support to European Central Bank efforts to contain inflation but still allowing leeway to member states for targeted measures to alleviate the impact of higher prices on consumers and businesses and to maintain long-term investment plans, EU officials told MNI.

The EU’s official fiscal guidance was last reviewed by ministers in March and by the European Commission in May, when the stress was on the need for a neutral stance after the expansionary policies in response to the Covid pandemic.

But a report from the European Fiscal Board on Wednesday called for a “moderately restrictive” stance in the eurozone next year and questioned whether the Commission had been right to extend the Escape Clause from EU fiscal rules until the end of 2023. ECB policymakers have also suggested that governments could do more to help to tame price increases.

STABILITY AND GROWTH PACT

The review of the fiscal stance at July’s Eurogroup meeting of ministers will need to perform a balancing act between the need to tackle inflation, maintain growth and the cause of sustainable public finances, one EU official said. It must also recognise that higher-debt states also need more time to improve their financial health, an approach likely to be echoed in slow-moving talks to revamp the bloc’s Stability and Growth Pact rules on debt, sources said.

“We need to make sure we are still on the right track and that we are still coordinated and united in the way we handle fiscal policy, first given the different starting points of states and second given the adjustment in monetary policy,” one of the officials said.

The fiscal-monetary coordination seen during the pandemic is becoming less pronounced as the ECB reacts to higher inflation, officials noted. While the ECB has said it is designing a bond-purchasing mechanism to allow it to contain any excessive widening of spreads between stronger and weaker members of the eurozone, finance ministers are aware their fiscal policies must stand up to scrutiny. (See MNI SOURCES2:ECB Mulls Crisis Tool As Officials Debate Spreads)

“The big challenge for the ECB is to have a tool that addresses irrational market developments. How do you define something as normal and something else as not normal – that will be their huge challenge, so let’s see how that plays out,” an EU source said.

MNI Brussels Bureau | david.thomas.ext@marketnews.com
MNI Brussels Bureau | david.thomas.ext@marketnews.com

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