European finance ministers are calling for an aggregate fiscal response at the euro area level that fully respects the Stability Pact in order to cope with a prolonged period of sluggish growth.
The ‘Ecofin’ Council adopted the recommendation on the economic policy of the euro area on Tuesday, 18 February; in it, the ‘Ecofin’ Council emphasises that this fiscal response should be “differentiated” according to the specific situation in each euro area country and should avoid any pro-cyclical effects.
“If downside risks were to materialise, fiscal responses should be differentiated, aiming for a more supportive stance at the aggregate level, while ensuring full respect of the Stability and Growth Pact”, stresses the recommendation.
Thus, countries with fiscal space are encouraged to stimulate public and private investment, while those facing high levels of public debt will need to continue to consolidate their public finances.
European Commission Vice-President Valdis Dombrovskis indicated that the Member States’ position was guided by current economic conditions, which is marked by GDP growth that is expected to stagnate at 1.2% of the GDP in 2019, 2020, and 2021 (see EUROPE 12425/5). He considered the fact that “Germany and the Netherlands”, which report budget surpluses, have decided to increase spending in order to stimulate their economies to be “positive”.
French Finance Minister Bruno Le Maire welcomed the fact that, “for the first time”, the euro area is saying that it is “ready to use a budgetary instrument, if necessary, were we faced with a lasting slowdown in growth, in order to relieve monetary policy”. He called for greater “flexibility” in fiscal rules to allow Member States to invest more in “green energy”.
Taxation. It should be noted that, in a statement appended to the recommendation, Malta considers that encouraging Member States to implement EU actions that aim to combat aggressive tax planning and avoid a race to the bottom in business taxation is “ambiguous” language, which “seems to imply that lower levels of taxation would inherently be harmful or abusive”.
See recommendation: http://bit.ly/2P3LpnC (Original version in French by Mathieu Bion)