With high unemployment in the Eurozone, especially EU countries must significantly boost their individual government spending which is likely to mitigate the risks of resentment towards the EU project.
Mario Draghi, the European Central Bank’s President is likely to plead to governments to do a lot more for boosting the Eurozone’s economy in the coming weeks.
The result of Britain’s historic referendum is threatening global growth and has shaken the Eurozone’s fragile economy.
Governments in Japan, China and Britain have either started easing their fiscal stances or have hinted at plans of doing so in the wake of sub-par global growth and inflationary worries which go to show that the monetary policies of central banks need much tweaking.
This Thursday’s ECB meeting is likely to reiterate Draghi’s long-standing call to increase government spending and speed up growth-boosting reforms.
Germany with its surplus budget has significant fiscal power. It however may be reluctant to give up its budgetary surplus and pool more money at the EU level in an absence of improved power sharing.
“We fear, therefore, that Mr Draghi’s calls for a loosening of the purse strings will go unheard, at least for now,” said economists at BNP Paribas. “As things stand, then, the burden of responding to the Brexit shock will remain with the ECB, which is all too aware that it has fewer and fewer tools with which to respond.”
However, calls for greatly boosting fiscal spending has, of late, been intensifying, with José Ángel Gurría, OECD’s head and George Soros throwing their weight behind these calls in recent weeks.
Especially, in the Eurozone, where unemployment is currently at a high, the need for more stimulus is critical as there is a growing resentment toward the euro project.
Many EU Finance Ministers have agreed to sanction Portugal and Spain for not doing enough to balance their excessively deficit budgets.
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