Draghi Says EU Must Ease Fiscal Rules to Allow More Investment

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The European Union’s framework for controlling debt must be changed to help the euro area overcome economic damage caused by the coronavirus pandemic, Italian Premier Mario Draghi said.

“The current fiscal rules were inadequate and are even more inadequate for an economy exiting a pandemic,” Draghi told Italian lawmakers in Rome on Wednesday. “Revision of the rules needs to ensure more ample margins for fiscal policy to work as an anti-cyclical stabilizing force.”

Draghi Says EU Must Ease Fiscal Rules to Allow More Investment

The EU’s rules were suspended during the pandemic to allow member states to support households and businesses through repeated lockdowns. Economy Commissioner Paolo Gentiloni said on Wednesday that the suspension is expected to remain in place until the end of next year.

When that happens, it may not be easy to go back to old limits given the currency bloc’s public debt has grown to a record 100% of GDP. Italy’s government in particular has spent over 170 billion euros ($205 billion) on economic stimulus so far, with debt seen increasing close to 160% of output this year.

Though Draghi said that the debate over EU fiscal rules has not yet begun, he was clear that it is not a matter of if but of how to modify them.

“I want to be very clear about this: there is no question that the rules will have to be changed,” Draghi said. The aim should be to put in place a system that can help boost growth and favor the digital and green transformation in Europe, he said.

The EU’s 800 billion-euro joint recovery fund is set to drive green and digital investments, and the European Commission today upgraded its growth outlook for the currency bloc this year to 4.3% from 3.8% to take into account that stimulus.

Total output by the EU’s 27 member states is now expected to reach its pre-pandemic size by the end of 2021, although France, Italy and Spain are expected to be slower in recovering and take an extra year.

New fiscal rules must aim to “reduce growing divergence among member states’ economies and complete Europe’s institutional architecture,” Draghi said.

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