Calls for Euro-Area Fiscal Stimulus Met With Silence, Literally

(Bloomberg) --

Euro-area finance ministers were presented with a fiscal policy document highlighting a lack of coordination, and the risk of a protracted economic malaise reminiscent of the one that befell Japan in the past three decades. Their response: silence.

When European Commissioner for Economic Affairs Paolo Gentiloni and the French Treasury’s Odile Renaud-Basso unveiled an “economic policy recommendation” on Monday evening in Brussels, there was no discussion or reaction at all, according to several officials who spoke on the condition of anonymity. The document warned of the looming “risk of a further prolonged period of low growth and inflation driven by anemic productivity and aging populations.”

Earlier in the meeting, the head of the currency bloc’s bailout fund, Klaus Regling, had warned ministers that China -- and possibly other Asian economies -- may contract this quarter as a result of a deadly viral outbreak. It’s a risk that could have knock-on effects on global supply chains and the export-dependent euro-area economy. Again, ministers said nothing, according to the officials.

The silence, which one official called dispiriting, highlights the gulf between investors and central bankers anxious about the currency bloc’s feeble growth prospects, and, on the other hand, ministers themselves, who are often consumed by much narrower domestic considerations. While senior officials from the ministries had previously debated the economic policy proposals in preparatory meetings, the absence of any political debate appeared also to upset French Finance Minister Bruno Le Maire.

Somewhere in between the silent “discussions” about the economic outlook and fiscal stance, ministers touched upon a proposal by the European Commission to revise the bloc’s budget rules and the EU executive’s schedule for this year, during which Le Maire lambasted the atmosphere of inertia, according to an official familiar with the matter. He told his peers he has two concerns, according to the official: the first is low growth, and the second is that ministers haven’t been doing much about it.

Still, finance chiefs formally endorsed the policy recommendation on Tuesday, which alludes to some increases in spending if the slump continues, as long as any such expansion doesn’t violate the bloc’s draconian fiscal rules. The lukewarm pledge in a non-binding policy document may disappoint European Central Bank officials who want governments to help them out more, insisting monetary policy alone can’t lift stubbornly low inflation.

Besides, it’s something that ministers themselves acknowledged in the document they endorsed: “Fiscal policy needs to complement the monetary policy stance, as do structural reforms across different sectors, including those necessary to complete the architecture of the Economic and Monetary Union.”

To contact the reporters on this story: Nikos Chrysoloras in Brussels at nchrysoloras@bloomberg.net;Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Zoe Schneeweiss, Fergal O'Brien

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