European Union finance ministers discussed the reform of tax rules in depth for the first time at a meeting yesterday in Luxembourg. And as predicted, differences with Germany were confirmed, which has won the support of ten other countries to call for less flexibility and more hard line. In contrast, the International Monetary Fund praised the proposal of the European Commission and encouraged the countries to finish the negotiations quickly.
The managing director of the IMF, Kristalina Georgieva, traveled to Luxembourg, where she presented to ministers her conclusions on the situation in the eurozone. In its report, the body supported the European Commission’s proposal, presented in April, to reform the tax rules. Bulgarian politicians believe that the new plan will help to have a “more counter-cyclical” fiscal position. He also asked for a “quick” agreement so that the EU can start reducing its debt. “A rapid agreement on the reform of the fiscal and economic governance framework would help long-term fiscal sustainability,” the report notes.
The report warns that countries must start making efforts, especially those with a greater debt, and gradually reduce the deficit. He also considers it important that the agreement takes into account medium-term fiscal adjustments, although he recalls that recommendations to reduce the deficit should not be based on “overly optimistic” growth forecasts. In fact, he considers that although the economy will gradually recover, it will be “slow”.
Likewise, the text warns of the high inflation suffered by the countries of the eurozone. In the same line defended this week by the European Central Bank, the organization believes that prices are still high, because even though they have been reducing they are still far from the target of close to 2%, so that further increases in rates will be necessary of interest A clear message of support for the measures taken by the ECB. The organization also points to the high uncertainty that still persists and points out that depending on this there will be more or less risk that prices will rise.
The IMF report was produced yesterday in the first debate in which the ministers of the Twenty-seven addressed the reform of the Stability and Growth Pact. There were no surprises. Germany had started the day before last Thursday’s Eurogroup meeting with the explicit support of ten countries. The Czech Republic, Austria, Bulgaria, Denmark, Croatia, Slovenia, Lithuania, Latvia, Estonia and Luxembourg joined Berlin in calling for the new budget rules to include specific targets for public debt reduction. A message with which the German Minister of Finance, Christian Lindner, wanted to show muscle and a clear sign that “Germany is not alone”. Berlin has always defended this harder line and even demands a mandatory debt cut of 1%. At the same time, Lindner rejects giving the Commission “a lot of freedom” to negotiate with countries for fear of lukewarmness and less fiscal orthodoxy.
Germany has encountered opposition from countries such as France and Italy. The French minister recalled that the overly rigid measures he proposed had already been tested in the past and led “to recession”, loss of production and growth. “It is the opposite of what we want,” said the French minister, Bruno le Maire. Despite everything, the economic vice-president of the Commission, Valdis Dombrovskis, as well as the Swedish presidency, were confident that even if there are different points of view there is room to reach an agreement before the end of the year under the Spanish presidency.
