EU leaders to back tighter euro zone fiscal stance in 2025

March 23, 2024

European Union leaders will today back a slightly tighter fiscal policy for the euro zone next year, to help bring down inflation and make public finance more stable after the excess spending of the Covid pandemic and the energy price crisis.

The endorsement comes after finance ministers of the 20 countries using the euro agreed on March 11 on fiscal policy guidelines for 2025 to take into account new fiscal rules that give more time to cut debt while maintaining investment.

“The European Council endorses … the …recommendation on the economic policy of the euro area,” draft conclusions of the EU leaders say.

The endorsed recommendation says that the new fiscal rules would require an overall slightly contractionary fiscal stance in the euro zone in 2025.

“This would be appropriate in light of the current macroeconomic outlook, of the need to continue to enhance fiscal sustainability, and to support the ongoing disinflationary process, while policies should remain agile in view of the prevailing uncertainty,” the endorsed recommendation says.

The European Commission forecasts that the aggregate euro zone budget deficit in 2024 will shrink to 2.8% of GDP from 3.2% in 2023, and then ease only marginally to 2.7% in 2025.

This should help in bringing down consumer inflation from 5.4% in 2023 to 2.3% in 2024 and then to 2.0% in 2025, reaching 1.9% in 2026, according to European Central Bank forecasts.

The leaders will also endorse a plan agreed by EU finance ministers on how to attract private capital to Europe to finance the continent’s costly transition to a greener and more digital economy while competing with China and the United States for key technologies and raw materials.

The plan is to create a Capital Markets Union (CMU) in the 27 countries that make up the EU, easing barriers for private investment across country borders — a task for the next European Parliament and Commission that will begin their 5-year terms in the middle and towards the end this year, respectively.

Among the areas of focus are securitisation, harmonisation of insolvency laws, tax treatment of pension savings and capital gains, or listing requirements.

“Creating a well-functioning and effective single market for capital through advancing the CMU is a necessity for Europe,” the chairman of euro zone financial ministers Paschal Donohoe said in a latter to the leaders.

“The CMU is one of the key components of our renewed focus on euro area competitiveness, which is imperative to respond to the profound shifts occurring in the global economic landscape,” he said.

Article Source – EU leaders to back tighter euro zone fiscal stance in 2025 – RTE

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