[WATCH] Eurogroup president warns inflation measures should not burden public debt

Fiscal policy should not get in the way of reducing inflation in the euro area, Irish Finance Minister Paschal Donohoe said while in Malta

Eurogroup president and Irish Finance Minister Paschal Donohoe warned that inflation measures taken on by EU member states should not unnecessarily add to government’s public debt.

During a press conference in Malta, Donohoe said that the Eurogroup, or group of finance ministers of the eurozone, reached a consensus on budget policy before the summer that fiscal policy should be neutral throughout 2023, meaning that government’s should not be working to grow or contract the economy.

“We believe that fiscal policy should not get in the way of trying to reduce inflation in the euro area. We need to have added focus on the sustainability of borrowing and public debt in the years ahead.”

He added that the European Commission will be bringing forward proposals to the fiscal bills within the EU in the coming months, after which each member of the EU will have to respond back with their own view on the future of the EU’s fiscal rules.

The fiscal policies of each EU member state is in part government by the Stability and Growth Pact. The rules state that each country’s budget deficit cannot exceed 3% of GDP, while government debt cannot exceed 60% of GDP.

These rules were suspended in May 2020 at the onset of the COVID-19 pandemic to give breathing room for countries to combat economic slowdown. The rules have remained suspended ever since.

Meeting with Clyde Caruana

Paschal Donohoe was in Malta on Tuesday to visit Finance Minister Clyde Caruana.

The two ministers discussed the changing geopolitical and economic environment, and how its affecting Malta, Ireland, and the entire Euro Area.

Both ministers emphasised the importance of close coordination between national economic and fiscal policies, especially against the backdrop of rising prices and reduced global growth.

“While Malta’s economic performance is among the best in Europe there are a number of challenges ahead. It is more important than ever that we maintain and strengthen the close cooperation we established during the pandemic, to ensure that our actions at national level complement each other and that the Euro Area economy continues to grow,” Donohoe said.

The coordination of economic policy will be a major focus of the Eurogroup’s agenda until the end of the year. The two ministers went on to discuss other Europgroup priorities such as the development of the Economic and Monetary Union and the digital Euro project.

“Navigating these difficult times requires strong and flexible policies that are sustainable and offer support to vulnerable sectors of society. This must happen within the context of a fiscally responsible framework which does not jeopardise tomorrow’s well-being for todays.”