EU Deficits Must Come Down as Economy Improves, Dombrovskis Says

European countries need to shift away from massive spending to help households and businesses through the energy crisis and refocus on fiscal discipline now that the economic outlook is improving, according to EU Commission Vice President Valdis Dombrovskis.

(Bloomberg) — European countries need to shift away from massive spending to help households and businesses through the energy crisis and refocus on fiscal discipline now that the economic outlook is improving, according to EU Commission Vice President Valdis Dombrovskis.

The EU’s executive arm on Monday raised its forecasts for growth in gross domestic product in the bloc this year, citing a mild winter, high levels of gas storage, and a strong labor market, and lowered its prediction for the rate of inflation.

“The EU economy is proving resilient in the face of current challenges,” Dombrovskis told reporters in Brussels ahead of a meeting of euro-area finance ministers. “It’s time to move toward more prudent fiscal positions.”

He said it is important for member states to gradually bring down budget deficits, both to avoid a situation where fiscal policy hampers monetary tightening and so as not to fuel further inflation. This also comes in a context of higher financing costs.

The European Central Bank has said it intends to deliver another 50 basis-point increase in interest rates next month as concerns persist about underlying price pressures even as record headline inflation is retreating in the euro zone.

The EU, meanwhile, is reviewing its so-called Stability and Growth Pact to try to soften the bloc’s fiscal rules, which have been suspended since the Covid pandemic and are due to be restored from Jan. 1. The commission aims to move forward with legislative proposals following discussions among finance ministers at meetings on Tuesday and in March.

–With assistance from Zoe Schneeweiss and Jorge Valero.

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