Three years on, public spending continues to shape policy as eurozone governments brace for tighter budgets amid ongoing crises. In response to the coronavirus pandemic and the war in Ukraine, eurozone member states are preparing to tighten fiscal belts. The budget guidance adopted recently by eurozone finance ministers outlines a path toward a more restrictive course in 2024, aimed at rebuilding tax buffers and supporting the monetary policy of the European Central Bank. Inflation remains a persistent concern for the Eurogroup as it faces the challenge of keeping price rises in check while maintaining economic resilience.
“The Eurogroup remains attuned to the impact of the crisis”, states the official declaration. It stresses the need to address the consequences of persistent inflation on the eurozone economy and its effects on households and businesses, along with higher borrowing costs that pressure deficit and debt targets over time.
Consequently, a determined, gradual, and realistic consolidation strategy is urged. This approach follows recommendations released by the European Commission in May and seeks to bolster budget sustainability, rebuild buffers, promote sustainable growth, and strengthen resilience to future shocks. It also emphasizes intergenerational equity, structural reforms, and a recovery plan that includes increased investment.
Gradual withdrawal of aid
After years of expansionary policy, the Economic Commissioner Paolo Gentiloni calls for a more restrictive fiscal stance, based on the measured withdrawal of energy price supports, a move already initiated in the May package. Brussels argues that phasing out stimulus is essential to lessen the energy crisis impact on homes and businesses. The message is widely echoed across eurozone governments.
The statement does not disclose exact figures for the structural adjustments required, though diplomatic sources suggest ranges of around 0.5% to 0.8% in line with the commission’s proposal. In line with prior Eurogroup statements, the aim is to avoid permanent increases in the deficit, thereby enabling a steady reduction of deficits and debt through necessary, credible adjustments.
Calviño: avoid staggering
What would these recommendations mean for the new government in Spain, especially with the 23J elections on the horizon? Nadia Calviño underscores the importance of market confidence and compatibility with international financial institutions that have supported Spain over the past five years. A responsible fiscal approach is vital to keep the deficit and debt trajectories on track and to maintain European approval for the country’s adjustment path.
Calviño warns against policies that could erode investor trust or destabilize the economy. She notes that disciplined public finances are necessary to prevent breaches of European rules and to avoid signaling uncertainty to markets. This position will guide discussions at the ECOFIN council and shape Spain’s fiscal stance as it chairs key EU meetings in the near term.
Tax reform in the fall?
Led by Spain during its six-month EU presidency, the bloc will press forward with fiscal rule reform starting July 1. A working document outlines four core elements that Calviño says will redefine the tax framework. First, it will reframe which institutions, including the Commission and the Council, hold sway over the financial rules. Second, it will establish parameters to ensure credible debt reduction while preserving growth and job creation. Third, it will set mechanisms to secure compliance. Finally, it will ensure that the new framework finances essential investments.
The aim is to advance negotiations in earnest, with the goal of reaching a political agreement by autumn and laying groundwork for an agreed framework by October. Gentiloni adds that achieving consensus on fiscal rules as soon as possible remains crucial for balancing the 2024 orientation. The last discussion showed notable differences between France and Germany, reflecting divergent approaches to the rules that govern eurozone fiscal policy. The negotiations continue as countries seek a durable path that respects budget discipline while supporting growth and social equity.