EU Getting the Message on Fiscal Stimulus, Spain’s Calvino Says

(Bloomberg) -- There is a growing agreement in Europe that governments need to aid the European Central Bank by delivering a fiscal response to the region’s economic slowdown, Spain’s acting Economy Minister Nadia Calvino said.

“We’ve gone through a period of very expansionary monetary policy -- what we see with the most recent decisions is that there’s not a lot of space left,” Calvino told Bloomberg TV’s Francine Lacqua and Tom Keene in Washington during the International Monetary Fund meetings. “There is a consensus being built on the need for fiscal policy and structural reforms to join in so that we can really have stronger growth.”

At the same time, Spain’s high debt levels and wide budget deficit mean it must focus more on fiscal consolidation than spending, she said. Countries such as Germany have more margin to act.

With the euro-zone economy battered by international trade and geopolitical tensions, and inflation running at barely half the ECB’s goal, calls are growing louder for governments that can afford it to ramp up spending. President Mario Draghi, in the final meeting of his term before handing over to Christine Lagarde, is likely to reiterate that message when policy makers meet next week.

German politicians who have opposed fiscal stimulus so far may be starting to soften their stance as the nation flirts with recession. Still, the government has yet to commit to action and Bundesbank President Jens Weidmann said on Wednesday that there’s no compelling need to do so.

Lagarde will take the helm at a “critical moment,” Calvino said, continuing Draghi’s monetary support but also encouraging countries to implement fiscal measures and structural reforms.

Spain’s own economic growth is slowing after several years of a robust recovery from a double-dip recession. It’s cooling faster than economists expected at the beginning of the year because of the heightened uncertainty stemming from Brexit and U.S. trade protectionism.

Spanish Polls

Calvino and other Socialist Party ministers aren’t able to do much to respond for now because the government is in a caretaker role ahead of general elections on Nov. 10. After an April ballot, acting Prime Minister Pedro Sanchez failed to cobble together the support he needed from lawmakers to secure a second term as premier -- so he called another election.

Polls show Sanchez is expected to once again receive the greatest number of votes but will face what are likely to be weeks of negotiations to try to form a government. Violent protests in the Spanish region of Catalonia this week, triggered by a court ruling to send pro-independence Catalan leaders to jail, adds an additional layer of uncertainty to the political calculus.

Earlier this week, Sanchez’s government trimmed its estimate for 2019 GDP growth to 2.1%. That’s a touch more optimistic than the Bank of Spain’s forecasts for 2% this year, weakening to 1.7% in 2020.

©2019 Bloomberg L.P.

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