IMF against fiscal easing in the eurozone - Countries with high debt are required to make additional efforts
Eurozone countries should not ease their fiscal stance further to cope with the current energy shock, but instead improve their budget balances. Countries with high debt levels need to make additional efforts, the IMF said in its annual assessment of the eurozone economy, published on Thursday.
An excessive deficit procedure of 1.5 percent is already in place across the bloc, allowing for defense spending, but EU countries most affected by the energy crisis are seeking further easing of fiscal rules. As the war in the Middle East continues, European importers that rely heavily on oil and gas are being hit hardest.
"We have warned that we are in a world more prone to shocks. We must expect that there will be more shocks and we must be very careful how we allocate scarce public resources, recognizing that this will not be the last time this will be needed," IMF Managing Director Kristalina Georgieva told reporters during a press conference.
Georgieva told reporters that the IMF "would very much like countries to be disciplined in how they use budget flexibility, especially countries that have high deficit levels."
Excluding Germany, the IMF recommends "improving the structural primary balance by about 3 percentage points of GDP between 2025 and 2031 - an additional 1.3 percentage points above the baseline, mainly for countries with high debt levels."
In other words, the IMF is calling for structural fiscal consolidation by eurozone countries with additional efforts for highly indebted countries, which must do even more than already foreseen.
"Fiscal adjustment will require a comprehensive and credible strategy that combines spending reprioritization, improving spending efficiency, and structural measures such as social rights reform, along with growth-enhancing reforms to raise revenues," the IMF statement said.
The IMF has urged eurozone countries to tighten their fiscal policies rather than loosen them further. Experts say this should be done in response to the energy crisis, as well as an additional adjustment effort required of highly indebted countries.
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