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MNI: EU FinMins To Back More Fiscal Effort As Outlook Improves

BRUSSELS (MNI)

EU finance ministers see more national fiscal support needed to ensure their recovery fund succeeds.

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EU finance ministers are likely to signal fiscal policy settings will remain on full throttle when they meet in person at Lisbon later this week, despite expectations of an improved economic outlook in the European Commission Spring forecasts due Wednesday, Brussels sources told MNI.

A priority topic will be implementation of National Recovery and Resilience Plans presented in order to tap European Covid aid, one source said, noting that national governments should take full advantage of the suspension of the borrowing rules under the Stability and Growth Pact.

"The focus of the discussion will be on how to deliver a sustainable recovery and how do we transition our economies into new growth models with the help of this big new instrument," the source said.

The bloc remains in the first phase of the three-phase programme for national fiscal support adopted by finance ministers in March, with full-blown fiscal support for as long as the Covid emergency lasts. Continuing downside risks mean there is no prospect yet of any discussion of shifting to the second phase, which would transition towards more targeted support to avoid any 'cliff edge' which might hurt confidence and markets sources said. The third phase -- return to normality -- is a much longer-term goal, and, with the Stability and Growth Pact likely suspended through 2022, will not start until 2023 at the earliest.

KEEP FUNDS FLOWING

"For the foreseeable, it's all about keeping money flowing, keeping our businesses afloat and protecting jobs that's really our priority," another source said, noting the desire not to remove support too soon and repeat mistakes made in the wake of the financial crisis.

"Fiscal and monetary policy now go hand in hand and the fiscal side remains incomplete, so I think the very first step is to get this EU recovery fund working".

The temporary suspension of the SGP is set to be confirmed by the Commission on May 26 when it also launches the start of the European Semester, when EU states will be able to submit their usual Stability Plans with none of the customary quantitative targets for deficits and debt.