The IMF on Friday urged EU countries to quickly reach an agreement on fiscal rules to create a medium-term sustainability framework and encouraged all, especially the most indebted, to make more efforts to reduce deficits.
The director general of the IMF (International Monetary Fund), Kristalina Georgieva, has presented in Luxembourg the report on the conclusions of the Fund’s mission to the euro zone, which foresees a “modest” recovery of its economy, both this year and in 2024 .
The text warns, however, that inflation remains high and far from the target, which is why new increases in interest rates will be necessary.
One of the first calls made by the IMF in the report is fiscal consolidation to “relieve” inflationary pressures, but also to “reconstruct” the European fiscal space.
“A quick agreement on the reform of the economic and fiscal governance framework would contribute to long-term fiscal sustainability,” the report states.
At a press conference, the director general of the IMF underlined this idea and was pleased that “discussions are now moving towards negotiating ground”, calling for a “quick” agreement so that the EU has a “solid framework” that allows “the debt reduction. in a countercyclical and non-procyclical way.
“We support the proposal of the European Commission (…) It will help to have a more countercyclical (budgetary) position, which is why we support the direction of the proposal,” Georgieva summarized.
The report also calls for the agreement to include medium-term fiscal adjustments, although it recommends caution. And, although he admits that the extension of the period of fiscal consolidation can be positive, he also asks that the reduction of the deficit is not based on “excessively optimistic” growth forecasts that could fail.
The IMF document is known on this day in which the EU-27 will hold the first political debate in Luxembourg on the reform of the Stability and Growth Pact, since the European Commission presented its legislative project.
Georgieva warned that economic activity in the euro zone countries will recover “very gradually” and also considered that inflation remains very high, stressing that uncertainty remains high.
This recovery, underlines the text, will be possible thanks to the improvement in income, the easing of supply chain problems and the increase in external demand, despite the tightening of financial conditions.
As for inflation, although it has decreased mainly due to the fall in energy prices, core inflation – which does not take into account energy and food products – has been more persistent and has only recently begun to slow down.
The report does not present updated data on the Gross Domestic Product (GDP) or inflation forecasts -these will be presented with the update of the global outlook in July-, but stresses that there are still risks that could lead to lower growth or a recovery of the prices
Among those risks, the report cites the return of financial turbulence, weaker-than-expected external demand, higher wages and profits that drive up inflation, or new supply chain problems.
Source: TSF
