EU leaders to endorse tighter fiscal stance for Eurozone in 2025

Eurozone fiscal policy 2025: EU leaders are set to endorse a slightly tighter fiscal policy for the Eurozone in 2025 to address inflation concerns and stabilise public finances following the COVID-19 pandemic and energy price crisis, according to draft conclusions seen by Reuters.

The decision follows an agreement reached by finance ministers from the 20 Eurozone countries on March 11, outlining fiscal policy guidelines for 2025 under new rules allowing more time to reduce debt while maintaining investment.

"The European Council endorses ... the ... recommendation on the economic policy of the euro area," the draft conclusions state.

The endorsed recommendation advocates for a mildly contractionary fiscal stance in the Eurozone in 2025, reflecting the current macroeconomic outlook and the need to enhance fiscal sustainability while supporting efforts to address disinflationary pressures amidst ongoing uncertainty.

According to forecasts by the European Commission, the aggregate budget deficit for the Eurozone is expected to decrease from 3.2 per cent of GDP in 2023 to 2.8 per cent in 2024, and then only slightly to 2.7 per cent in 2025. This trajectory aims to contribute to reducing consumer inflation from 5.4 per cent in 2023 to 2.3 per cent in 2024, reaching 2.0 per cent in 2025 and 1.9 per cent in 2026, as projected by the European Central Bank.

Additionally, EU leaders are poised to endorse a plan formulated by EU finance ministers to attract private capital to Europe, facilitating the continent's transition to a greener and more digital economy while enhancing competitiveness vis-a-vis global players like China and the United States in critical technologies and raw materials.

The plan entails establishing a Capital Markets Union (CMU) across the 27 EU member states, aiming to streamline barriers to private investment across national borders. This initiative will be a priority for the upcoming European Parliament and Commission, set to commence their terms later this year.

Key areas of focus under the CMU include securitisation, harmonisation of insolvency laws, tax treatment of pension savings and capital gains, as well as listing requirements.

Paschal Donohoe, the chairman of Eurozone financial ministers, emphasised the importance of advancing the CMU to bolster Europe's competitiveness amid significant global economic shifts.

"Creating a well-functioning and effective single market for capital through advancing the CMU is a necessity for Europe," Donohoe stated in a letter to the leaders. "The CMU is one of the key components of our renewed focus on euro area competitiveness, which is imperative to respond to the profound shifts occurring in the global economic landscape."

(With Reuters inputs.)