Hours after the European Central Bank approved the largest rate hike in its history, 0.75 points, to try to lower inflation, its president, Christine Lagarde, left a clear message to European capitals: "Monetary policy and the economic one must go hand in hand and not contradict each other”, he said during the informal Ecofin held for two days in Prague.
The European economy ministers have picked up the gauntlet thrown down by Lagarde and have committed to finding a balance between the need to combat inflation and, at the same time, stimulate economic growth and help households and companies affected by the increase in prices caused due to the lack of energy. “We are committed to avoiding an inflationary spiral”, said the president of the Eurogroup, Paschal Donohoe, this Friday after the first debate with the ministers. "Policy interventions should focus on income transfers that are exceptional, temporary and, to the extent possible, selective in nature."
“Unfortunately, we are going to have to maintain nerves of steel” so as not to waste public money and focus aid on those most in need, signed the German Finance Minister, the liberal Christian Lindner. Community institutions advise governments to explain well to citizens that the ultimate cause of the crisis is Putin's "immoral war against Ukraine".
Until the end of August, the EU countries have mobilized the equivalent of 9% of community GDP to respond to the crisis, according to the European Commission. The figure is increasing, because practically every day governments approve some measure to help consumers or companies. Brussels reminds states that they must maintain a prudent fiscal policy.
"Economic policy must be consistent with the work of the ECB to reduce inflation," Valdis Dombrovskis, vice president of the European Commission, stressed yesterday in Prague, insisting on the idea that the support measures that are approved must be as selective as possible. to help consumers overcome difficulties without fueling inflation and without putting more stress on their financial situation, which is delicate in some cases as a result of the pandemic.
At the end of October, Dombrovskis will present the Commission's proposal to change the EU's fiscal rules. In view of past experience with the rules on public debt – theoretically it should be below 60% of GDP, a threshold that few respect – and the magnitude of the differences between countries, Brussels will propose offering differentiated reduction paths to each country.
"More room will be given to the member states but based on the same rules," said Dombrovskis, who admitted that there cannot be "one-size-fits-all solutions." Although the average public debt in the EU is 95%, behind that percentage there are enormous differences: in Greece it is 189%, in Italy 152%, and in Spain 117%, at the level of France, while in Latvia and Lithuania is around 40% and in Estonia it is less than 18%.
“It will be necessary to make fiscal adjustments, reforms and investments. These elements must be combined to achieve a realistic, gradual and sustained reduction in public debt”, stressed Dombrovskis at the end of the informal Ecofin held in Prague. Realism, the economy ministers claim. “We all agree that the rules must be clear and enforceable. This means that they must be realistic”, summarized the Czech Minister of Economy, Zbyněk Stanjura, on behalf of the rotating presidency of the Council. In exchange for the flexibility to set targets, Brussels wants to toughen the consequences of breaking fiscal rules.
