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Eurozone supports broadly neutral but flexible fiscal stance in 2023 amid Ukraine war

FILE PHOTO: European Union flags fly in front of the European Commission headquarters in Brussels
FILE PHOTO: European Union flags fly in front of the European Commission headquarters in Brussels, Belgium April 10, 2019. REUTERS/Yves Herman

March 14, 2022

By Jan Strupczewski

BRUSSELS (Reuters) – Euro-zone finance ministers are likely on Monday to back the European Commission’s view that fiscal policy should shift from supportive to neutral in 2023, but that they must be ready with more cash should the war in Ukraine end should make this necessary.

Finance ministers from the 19 countries that share the euro 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 recovered.

“It’s going to be harder than we thought just a few weeks ago,” said a senior eurozone official who helped set up the talks.

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

EU countries’ credit limits are likely to remain suspended in 2023, the commission indicated, but high-debt countries like Italy and Greece should continue to focus on tightening fiscal policy, while low-debt countries should focus more on investment.

“The situation is evolving rapidly and we must update the image as new information arrives. The situation in Ukraine is first and foremost a massive human tragedy. In economic terms, the impact on the eurozone is likely to be severe but tolerable,” the official said.

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

BANKING UNION

The European Central Bank last week forecast that euro-zone growth will slow by 0.5 percentage points this year because of the war in Ukraine, but will still reach a respectable 3.7% and slow to 2.8% in 2023.

However, according to the ECB forecast, inflation will average 5.1% in 2022 and 2.1% in 2023, well above the bank’s target of 2.0%.

“There is good reason 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 recognize that we must be prepared to update our assumptions and adjust our policies as needed. ‘ said the officer.

Eurozone ministers will not discuss the sanctions imposed on Russia because they will do so with their EU counterparts outside the eurozone on Tuesday.

The 27 EU ministers will also discuss completing the EU’s banking union, which lacks a European Deposit Insurance Scheme (EDIS), at their Monday night meeting, as governments first look to agree on ways to reduce risk at banks.

The other elements of the banking union, all playing a role in the discussions, are the diversification of banks’ sovereign bond portfolios to reduce risk, and cross-border integration and diversification of banks.

On Monday, Eurozone finance ministers chief Paschal Donohoe is likely to present an initial blueprint for an agreement on EDIS, which will see multiple phases in which more risk-sharing via a deposit-taking scheme will be matched with more risk reduction, the official said without elaborating.

Based on feedback on the original plan, a comprehensive plan to achieve EDIS could be ready in April and an agreement reached in June, the official said, but he warned that even that would not be the end of the discussion.

“There will not yet be a detailed agreement on all elements of the banking union. It will be the political commitment of member states to a certain set of broad banking union elements and a set of principles and processes that will then guide subsequent legislative work,” he said.

(Reporting by Jan Strupczewski; Editing by Emelia Sithole-Matarise)

https://www.oann.com/euro-zone-to-back-broadly-neutral-but-flexible-2023-fiscal-stance-amid-ukraine-war/?utm_source=rss&utm_medium=rss&utm_campaign=euro-zone-to-back-broadly-neutral-but-flexible-2023-fiscal-stance-amid-ukraine-war Eurozone supports broadly neutral but flexible fiscal stance in 2023 amid Ukraine war

DUSTIN JONES

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