Brussels, 25/08/2014 (Agence Europe) - Faced with low growth and continued low inflation in the eurozone, the European Central Bank is now changing tack and recommending making greater use of budget policies at both national and European levels.
At a world summit of central bankers at Jackson Hole at the weekend, ECB President Mario Draghi said: “It would be helpful for the overall stance of policy if fiscal policy could play a greater role alongside monetary policy. The eurozone has suffered from fiscal policy being less effective and available, especially compared with other advanced economies”.
The ECB president put forward four areas where budget policy could play a greater role: - “the existing flexibility within the rules could be used to better address the weak recovery and make room for the cost of needed structural reforms”; - “There is leeway to achieve more growth-friendly composition of fiscal policies, for instance by lowering the tax burden in a budget-neutral way”; - “Stronger coordination among the different national fiscal stances should in principle facilitate a more growth-friendly aggregate fiscal for the euro area”; - “Complementary action at the EU level would also seem to be necessary to ensure both an appropriate aggregate position and a large public investment programme”.
The next president of the European Commission, Jean-Claude Juncker, talked upon his appointment of launching a €300 billion investment programme through greater mobilisation of the European Investment Bank (see EUROPE 11123).
A spokesman for Euro Commissioner Jyrki Katainen said on Monday 25 August that what Draghi said broadly reflected the position taken on a number of occasions by the European Commission, such as in the conclusions document for the June 2014 European summit and the Ecofin Council in July that urged the member states to pay particular attention to structural reforms that boost growth and make public finances more sustainable, particularly making the best use of the flexibility available under the stability and growth pact. Speaking in Spain, where she was meeting with Spanish Prime Minister Mariano Rajoy, German Chancellor Angela Merkel repeated her constant refrain that budget consolidation and growth-stimulation were “two sides of the same coin”.
Launched by the Italian Presidency of the Council of the EU, this debate about adjusting the thrust of economic policies in Europe may raise its head at the European summit on Saturday 30 August that is intended to focus on deciding who gets the big jobs in Europe. Investment and how to finance it are already on the agenda for the meeting of European finance ministers in Milan on Friday 12 and Saturday 13 September.
In early November, the European Commission will unveil its autumn economic forecasts and in mid-November it will publish its opinion on member states' draft budgets for 2015, which the member states have until 15 October to provide to the Commission under the rules of the “two-pack” adjustments to the stability and growth pact.
On Monday, the Commission refused to comment on the resignation that same day of the French government headed by prime minister Manuel Valls due to deep disagreement between the PM and his economy minister, Arnaud Montebourg, who often criticises the economic austerity dogmatism in Europe that is defended by Germany and other countries. (MB)