MNI BRIEF: Brussels EZ Fiscal Stance Not Tough Enough - EFB

The European Commission’s 2024 guidance for Euro Area member states’ budgets is not restrictive enough, the European Fiscal Board says Wednesday. In its annual report, the EFB says the Commission’s spring 2023 surveillance report projected a restrictive fiscal impulse of 0.8% of GDP in 2024, but the planned phase out of energy-related measures next year alone are worth 1.25% of GDP, the EFB notes.

“Barring new negative developments, an improvement in the structural primary balance beyond the 0.8% of GDP projected by the Commission would appear to be appropriate,” the EFB says.

The board says that fiscal consolidation is now particularly important for high-debt countries and urges them to make the most of the expected return to economic normality next year. “A sizeable restrictive fiscal impulse would help the ECB in the pursuit of its inflation target. A fiscal policy stance that is too expansionary would imply higher interest rates with a potential knock-on effects for output and other macroeconomic variables.”

The Eurogroup is due to discuss and issue a statement on the euro area fiscal stance at its July meeting.