Brussels, 04/09/2014 (Agence Europe) - The head of the Eurogroup, Jeroen Dijsselbloem, says that ECB chief Mario Draghi's speech last month at the annual meeting of central bankers at Jackson Hole in the United States (see EUROPE 11139) encourages member states to find budgetary margins for manoeuvre and reform their economies to stimulate growth.
Dijsselbloem commented on the speech by the head of the European Central Bank, saying that “Draghi stressed the need for fiscal policy that could play a greater role. (Don't expect all solutions coming from us!)”. Dijsselbloem was addressing MEPs on the economic and monetary affairs committee on Thursday. On the fiscal side, he said there were “lots of options and wise choices to be made. Growth-friendly decisions to be made (for example: reducing the tax wedge, shifting the tax pressure, expenditure cuts)”.
The head of the Eurogroup repeated the European summit's call for use to be made of the existing flexibility under the stability and growth pact, describing the SGP as “crucial for credibility”. He made a clear distinction between the flexibly allowed for countries under the corrective arm of the SGP (those with a deficit of over 3% of GDP, such as France) and countries under the preventive arm (not subject to the proceedings for excess deficit, such as Italy). For the first group, any setting of new medium-term objectives - and therefore the granting of extra time to reduce the deficit - will depend on how the current economic situation is characterised. The EU28 says the economic recovery is “weak,” inflation is “exceptionally low” and unemployment at an “unacceptable level” (see EUROPE 11144).
Dijsselbloem said he did not know whether the current period of low inflation meant exceptional circumstances. He ruled out any danger of deflation in the eurozone, but accepted the need to take into account, in the setting of any new medium-term budget targets, the time lag for the reforms to begin to impact on growth: “If extra time is given, it should not be wasted but used well. Put forward list of structural reforms. Some reforms take time to kick in. We need to find a way to take the time element into consideration when we design medium-term objectives”.
Countries under the preventive arm of the SGP might be more interested in certain types of public investment being ignored when calculating public deficits. How can big investment plans be financed if no difference is made between investment expenditure and expenditure to finance the deficit in current accounts? asked Hugues Bayet (S&D, Belgium). Dijsselbloem approved of the investment plan idea promised by the next president of the European Commission, Jean-Claude Juncker, but warned that “not all answers can come from public expenditure”.
Asked by Dutch ALDE MEP Cora van Nieuwenhuizen how long he would be staying at the helm of the Eurogroup, Dijsselbloem said he would remain in the job until the end of his term of office in July 2015, adding that it was too soon at this stage to talk about whether he would remain in the job for a second term. (MB)