EU ministers discuss soaring inflation and reform of EU fiscal rules

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European Central Bank President Christine Lagarde attends a meeting of euro area finance ministers in Luxembourg, October 4, 2021. REUTERS / Yves Herman

BRUSSELS, Nov. 8 (Reuters) – European Union finance ministers will discuss a surge in consumer prices on Monday, its impact on wages and changes they would like to make to the bloc’s fiscal rules to support investment and reduce debt.

Inflation rose 4.1% year-on-year last month in the 19 countries sharing the euro, from 3.4% in September. Ministers are starting to fear that the hike will fuel stronger wage growth, creating an inflationary spiral.

“It was faster than expected,” said a senior EU official involved in the meeting. “The 4.1% should spark some discussion.”

The rise was mainly due to a 23.5% rise in energy prices, which the official said would eventually fall back, but likely not to pre-COVID-19 pandemic levels.

“We should go back to more benign inflation figures, but the process will be slower than expected and the risk of second round effects in wage formation is clearly something that needs to be taken seriously and monitored,” he said. declared the responsible.

The European Central Bank, responsible for keeping inflation at 2% in the medium term, will brief ministers. ECB chief economist Philip Lane, in comments published Monday by Spain’s El Pais newspaper, reiterated the bank’s message that the strong price growth is temporary.

“We believe that (supply) bottlenecks will ease over the next year and that energy prices will either fall or stabilize,” Lane said. “This current period of inflation is very unusual, temporary and not indicative of a chronic situation.”

The European Commission, which will also present its point of view to ministers and publish its economic inflation forecasts on Thursday, also believes that inflation will subside.

“Energy prices have a decisive impact in this rise in inflation, and the phenomenon will be temporary, probably diminishing in the first half of next year,” Economic Commissioner Paolo Gentiloni told reporters on entering the report. the meeting.

‘LONG TRIP’

Ministers will begin discussions on a draft reform of the EU’s fiscal rules, which requires governments to keep budget deficits below 3% of GDP and debt below 60%, to adjust them to post economic realities. -pandemic high public debt and significant investment needs. to fight against climate change.

The rules now require annual public debt reductions which are too ambitious for most EU countries and provide little explicit support for public investment.

But governments are divided on the extent of the changes needed. Southern EU countries are more inclined to relax debt reduction rules and grant special status to investment, such as exempting it from deficit calculation, than northern states.

A balance will be needed “between prudent policy and fiscal support for growth,” the official said of talks that will last for most of 2022. “It’s a long journey. We must not try to rush it. “, said the official.

Edited by Timothy Heritage

Our Standards: Thomson Reuters Trust Principles.


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