(Bloomberg) -- Euro-zone governments committed to reducing expenditure next year to bring down borrowing after years of higher spending to support businesses and households through the Covid pandemic and energy crisis.
The currency bloc’s finance ministers agreed that “a gradual and sustained fiscal consolidation in the euro area continues to be necessary” given the need to “reduce the high levels of deficit and debt,” according to a Eurogroup statement released on Monday.
The commitment comes as the European Union is bringing in new fiscal rules that will oblige member states to cut spending or raise taxes in their draft budgetary plans in order to balance public accounts from next year.
The task will be especially urgent in highly indebted countries including France, where snap elections have delivered a hung parliament. Political parties with expansive tax-and-spend policies are jockeying to form the next government in Paris, which may herald difficult talks with European partners.
Eurogroup President Paschal Donohoe said the fiscal effort needed will be more demanding than governments had initially anticipated in spring, but said capitals could slim their budgets by phasing out support.
“From the analysis that we have done, if the energy measures and the broader economic measures that were brought in when inflation was so high were to be removed, that would be a key driver of moving toward a contractionary stance for next year,” he told a group of reporters on Monday.
Still, member states are making efforts to shield public investment after the lessons learned in the aftermath of the financial crisis, when it took more than a decade for levels to recover from a period of severe austerity that also discouraged private investment.
“We are all making huge efforts to try to at least maintain the value of capital investments within our economies but to find ways of trying to increase it further as well,” Donohoe said.
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