Belgium, (Brussels Morning Newspaper) The European Commission called on eurozone countries to support ECB’s efforts to curb inflation next year.
The body pointed out that the countries should coordinate their fiscal policies and continue investing through the crisis, according to Reuters reporting on Tuesday.
The EC recommends what it believes to be an optimal policy mix for the eurozone as part of the EU’s annual policy coordination.
The body stressed the importance of coordination to cushion the blow of the energy crisis and adapt to challenges brought on by the war in Ukraine and the looming recession.
“The economy faces a year of challenges… but if we remain united and pursue a coordinated policy response, we are well-placed to face them,” noted Paolo Gentiloni, European Commissioner for Economy.
Speaking at a press conference on Tuesday, he added that “euro area countries should refrain from broad-based fiscal expansion while delivering targeted support for the most vulnerable.”
The EC warned that discrepancies in support provided to companies and households present a problem, pointing out that Germany provided more than twice as much support as France and Italy.
This distorts competition and serves as a fiscal stimulus, counteracting ECB’s efforts to curb soaring inflation. The EC added that roughly 70% of aid measures are broad and difficult to roll back, rather than provided to the most vulnerable only and temporary.
“Euro area member states should continue to coordinate fiscal policies to support the timely return of inflation to the European Central Bank’s 2% medium-term target,” the Commission stressed.
The body called on eurozone countries to provide targeted aid to the most vulnerable companies, especially small and medium-sized enterprises (SMEs), and make sure the measures are temporary and cost-effective.
The EC stressed the importance of setting up aid systems that provide incentives for saving energy, noting that schemes under which governments subsidise energy consumption up to a certain level are a good example.
It called on the governments to continue investing in recession, pointing out that they can use EU recovery funds to do so.
According to Gentiloni, eurozone governments should phase out aid schemes aimed at cushioning the blow of rising energy crisis in Q1 next year to help the ECB rein in inflation.