With the global economic environment deteriorating, eurozone member state governments should focus on protecting the most vulnerable rather than supporting demand, while any fiscal policy should aim to maintain debt sustainability.
This is the key point highlighted by today’s Eurogroup communiqué, which also points out that measures need to focus on supply-side constraints, implementing structural reforms, but also supporting investments for the green and digital transition.
In particular, the Eurozone Finance Ministers who met today, underline that the macroeconomic environment has worsened, including the growth outlook and the dynamics of inflation, as confirmed by the latest forecasts of the European Commission and the ECB.
They note that although eurozone economies remain resilient, global risk factors, including those related to war, pandemic and financial market volatility, remain elevated.
According to the Eurogroup, several supply-side constraints, including labor availability in some member states and sectors, could limit near-term growth.
It is noted that the risks affect the member states to a different degree, but as the Ministry of Finance emphasizes, the current economic situation and the increased uncertainty require careful planning of the fiscal policy.
Thus the Eurogroup underlines that supporting aggregate demand through fiscal policies in 2023 is not justified, but must instead focus on protecting the most vulnerable, while maintaining the flexibility to adjust if needed.
Fiscal policy in all countries should aim to maintain debt sustainability as well as increase growth momentum in a sustainable manner to enhance recovery, thus also facilitating the task of monetary policy to ensure price stability without to add inflationary pressures.
Fiscal policies should continue to be appropriately differentiated according to the economic and fiscal situation of Member States, including their exposure to the crisis and the number of refugees they have received from Ukraine.
Fiscal measures should focus on easing the supply-side constraints holding back our economies, the Eurogroup stresses, adding that implementing structural reforms and supporting investment for the green and digital transition remain priorities.
As the announcement highlights, broad-based fiscal measures such as tax breaks and excise duty reductions are intended to cushion the impact of soaring energy prices, but should be temporary and increasingly targeted of the most vulnerable.
At the same time, it is emphasized that national budgets must maintain incentives for the energy transition. In this respect, income-enhancing measures are preferable to price-reducing measures.
In any case, the Ministry of Finance recognizes that the negative impact on incomes due to high energy prices cannot be permanently addressed through compensatory fiscal measures, but medium-term investments in energy efficiency and the development of environmentally sustainable local energy sources will be required.
Source: Capital
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