Brussels warns that fiscal stimuli can increase inflation

Brussels notifies the Eurogroup that the fiscal stimuli they are adopting to fight the energy crisis could worsen inflation. The European Comission has urged euro countries to correct course and move to measures that only help vulnerable households and businesses.

The Commissioner for the Economy, Paolo Gentiloni, has stressed that the latest data point to a fiscal expansion of 200 billion euros.

“We see a new important fiscal stimulus in 2022. It is around 2% of GDP, mainly driven by measures to mitigate the impact of energy prices that represent 1.25%. This significant fiscal expansion, of course carries the risk of increasing inflationary pressure,” Gentiloni has highlighted.

He also pointed out that most of the measures adopted, 70%, are not aimed at the groups most exposed to rising prices.

For his part, the President of the Eurogroup, Paschal Donohoe, He pointed out that the main challenge is to manage the balance between reducing inflation, while supporting vulnerable households and the competitiveness of the euro area.

The German Finance Minister, Christian Lindner, spoke on this issue when he arrived at the Eurogroup, stating that the euro area must respond to inflation with “selective aid for citizens and companies”but on the other hand it is “crucial” that the sustainability of public finances be maintained and that these measures do not go against the ECB’s monetary policy.

For his part, Dutch Finance Minister Sigrid Kaag He defended that his country has been “very clear” in this regard and guaranteed that his government’s measures will be “as specific and temporary as possible.”

The debate on the deployment of public aid to alleviate the impact of inflation is intertwined with the revision of the community fiscal rules, a reform that Brussels wants to relaunch this Wednesday with the publication of a new reflection document that will frame the negotiations of the next months.

Regarding this matter, Belgian Finance Minister Vincent van Peteghem He asked to settle that review over the next year, so that in 2024 a Stability and Growth Pact that has been suspended since the pandemic can be applied again.

“Otherwise it will be too complicated or we will need more flexibility if we apply the old rules again (…) I really hope that we can have the discussion during the next few months so that at the end of next year we can start with a new budget framework”he expressed.

In this line, the Spanish Vice President for Economic Affairs, Nadia Calviñoassured that the proposal that the European Commission will present next Wednesday will establish a “good basis” to advance in a reform.

“What we know at the moment seems like a good basis for moving forward. It will be very important to strike the right balance and, above all, to ensure ownership and understanding of these rules and the support of the population across the EU”he claimed.