MNI BRIEF: Eurogroup To Nudge Fiscal Policy Into Sync With ECB

Eurogroup President Paschal Donohoe has a “window of opportunity” in the first quarter to steer member states away from untargeted energy support packages adopted during last year’s gas price crisis, EU officials told MNI on Tuesday.

The European Central Bank’s recent signal that rates will rise significantly through early 2023 to combat inflation and a welcome easing in energy prices are also putting pressure on states to rein in expansionary fiscal stances at odds with the hawkish monetary policy setting, officials said. (See MNI INTERVIEW: Need Strong ECB Hikes For Early CPI Win -Kazaks)

“There is a monetary policy, which is independent, but we can’t be sending mixed signals. We can’t have a hawkish monetary policy sitting alongside very expansionary fiscal measures, it just doesn’t work," the official said.

REFLECTION

Last year governments disregarded guidance from the Commission and Eurogroup for energy support packages for consumers and businesses to be targeted and temporary, provoking criticism from ECB President Christina Lagarde, who called for fiscal policy to be more supportive of the inflation fight.

France and the Netherlands are expected to present proposals on rolling back some of the measures at Monday's Eurogroup meeting.

“There is an opportunity now to reassess these models because of these emergency measures are coming to an end in Q1 this year,” the source said.