Euro Zone Will Organize Monetary And Fiscal Policy To Combat Inflation

The euro zone’s finance ministers decided on Friday to work together to safeguard consumers and businesses from skyrocketing energy costs, coordinating their support measures with the ECB to prevent escalating inflationary pressures.

The ministers from the 19 nations that make up the euro zone concurred that financial assistance should be the main focus of assistance, but that it should be treated as an emergency measure and should, whenever possible, be carefully targeted.

To maintain fair competition, support for businesses should be coordinated across national boundaries.

“We acknowledge and we agree that we must reduce inflation,” the chairman of euro zone finance ministers Paschal Donohoe told a news conference. “The failure to do so will make our citizens, the people of Europe, poorer for longer,” he said.

Numerous multibillion-euro packages have been announced by France, Germany, and other nations to assist businesses and consumers in coping with rising inflation. The EU government has reportedly already provided 282 billion euros ($285 billion), according to the Bruegel think tank, with more on the way.

Inflation, however, can be fueled by the support itself, creating a vicious cycle.

“Our interventions will be coordinated with the monetary policy of the ECB and we will make all efforts to avoid adding to the inflationary pressure to which the ECB and we as finance ministers are responding to,” Donohoe said.

The ECB prioritized the fight against inflation as the bloc is probably headed towards a winter recession and gas rationing, raising its key interest rates by an unprecedented 75 basis points and promising further increases.

When asked how the ministers planned to balance increasing the amount of money going into the economy through support measures without increasing inflation, Donohoe responded that the solution lay in the size and composition of the measures, but acknowledged that it was a difficult task.

The challenge, according to Paolo Gentiloni, European Economic Commissioner, is maintaining the support’s temporary nature and focus.

“I know it is very difficult because when you introduce a measure the tendency to leave it there is inevitable and it is difficult to limit your support to certain groups,” he said.

The design of the European support schemes has improved, but ECB President Christine Lagarde noted that there is still room for improvement.

“It was 10% of the measures that were tailored and targeted, now we are moving to 15%, and there is a clear need of improvement in that respect,” she said, adding that when it came to efficiency, income transfers were preferable to price caps.

European Commission proposals to address the region’s energy crisis are being discussed by EU energy ministers in Brussels. These proposals include a price cap on Russian gas, a windfall tax on non-gas power plants, a reduction in electricity demand across the bloc, and emergency credit lines for power companies facing soaring collateral requirements.

(Adapted from USNews.com)



Categories: Economy & Finance, Entrepreneurship, Geopolitics, Strategy, Sustainability, Uncategorized

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