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The eurozone will generally support a neutral but flexible fiscal stance of 2023 amid war in Ukraine

ARCHIVE PHOTO: European Union flags flutter outside the European Commission headquarters in Brussels, Belgium, April 10, 2019. REUTERS / Yves Herman

March 14, 2022

By Jan Strupczewski

BRUSSELS (Reuters) – Eurozone finance ministers are likely to support the European Commission on Monday in saying that fiscal policy should move from supportive to neutral in 2023, but that they should be prepared with more cash if the war in Ukraine make it necessary.

Finance ministers from the 19 euro-sharing countries meet on Monday to discuss their fiscal stance next year as Russia’s invasion of Ukraine increases uncertainty and risks to the EU’s post-pandemic economic growth.

“It will be more difficult than we thought a few weeks ago,” said a senior eurozone official involved in preparing for the talks.

The Commission recommended on 2 March that EU governments should move to a neutral fiscal stance next year from a supportive stance now, but be prepared to adapt quickly if the crisis in Ukraine poses new challenges for the rest of Europe.

EU lending limits are likely to remain suspended in 2023, the commission said, but high-debt countries such as Italy and Greece should focus on tightening fiscal policy, while low-debt countries should focus on tightening fiscal policy. more on investment.

“The situation is evolving rapidly and we need to update the picture as new information comes. The situation in Ukraine is first and foremost a huge human tragedy. “In economic terms, its impact on the eurozone is likely to be serious but bearable,” the official said.

“The current expectation is that growth will continue, but at a significantly slower pace, with stronger inflationary pressures than we expected,” the official said.

BANKING ASSOCIATION

The European Central Bank last week predicted that eurozone growth would be 0.5 percentage points slower this year due to the war in Ukraine, but would continue to reach a decent 3.7%, with a slowdown to 2.8% in 2023 .

Inflation, however, is set at an average of 5.1% in 2022 and 2.1% in 2023, according to the ECB forecast, well above the bank’s target of 2.0%.

“There are good reasons to be optimistic about the resilience of our economies, but we are in a situation where uncertainty is very high and downside risks have increased, so we realize that we need to be prepared to update our assumptions and adjust our policies. as required. “, Said the official.

Eurozone ministers will not discuss sanctions imposed on Russia because they will do so with their non-eurozone counterparts on Tuesday.

The 27 EU ministers, who will meet on Monday night, will also discuss the completion of the EU banking union, which lacks a European Deposit Insurance Scheme (EDIS), as governments first want to agree on ways to reduce banks.

Other elements of the banking union that all play a role in the debates include the obligation of banks to diversify their government bond portfolios to reduce risk and the cross-border integration and diversification of banks.

On Monday, eurozone finance minister Paschal Donohoe is likely to unveil an initial plan to reach an EDIS deal that envisions a multi-stage process in which more risk-sharing through a deposit system is combined with greater risk reduction, he said. the official. without specifying.

Based on the comments on the original plan, a full plan on how to get to EDIS could be ready in April and an agreement could be reached in June, the official said, but warned that even that would not be the end. of discussion.

“There will not be a detailed agreement on all the elements of the banking union yet. “It will be a political commitment of the Member States to a specific set of broad elements of the banking union and a set of principles and procedures that will then guide the legislative work that will follow,” he said.

(Report by Jan Strupczewski · Edited by Emelia Sithole-Matarise)



The eurozone will generally support a neutral but flexible fiscal stance of 2023 amid war in Ukraine

Source link The eurozone will generally support a neutral but flexible fiscal stance of 2023 amid war in Ukraine

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