2016-05-18
The euro area economic recovery has been too slow and fragile, and the accommodative monetary policy alone is insufficient for the engine of the economy to start working full power. Therefore, accommodation reserves should be looked for in the region states’ fiscal, i.e. tax and debt management policy, says Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania.
‘We see possibilities for stirring the euro area economy out of its lethargic state and seeking stable economic growth in the future; for that, however, strong political will and clear commitment of the states to exploit fiscal incentives are necessary,’ says V. Vasiliauskas, who will deliver a report at a high level seminar on monetary and fiscal policy coordination on 19–20 May in Slovenia, organised by this country’s central bank and the International Monetary Fund (IMF). He stresses that fiscal incentives could, and should, be applied in countries that strictly follow financial discipline, have secured a perfect condition of their public finances and, therefore, have sufficient room for fiscal manoeuvres.
According to V. Vasiliauskas, the accommodative monetary policy implemented by central banks has increased the confidence of financial market participants, reduced the borrowing cost for the states, businesses and residents, while credit has been recovering. However, it will be difficult to overcome the issue of too-slow economic recovery with monetary policy instruments alone.
‘The euro area drama has lasted too long. Seeking its happy upshot, we should include tax and sovereign debt instrument management measures along with the ECB’s monetary policy instruments into the set of economic recovery instruments. Current fiscal policy rules should be simpler and clearer, and the assessment of following them — more transparent and stricter,’ says V. Vasiliauskas.
He noted that the European Commission had submitted recommendations to EU countries for reform implementation; however, none of the 102 recommendations put forward last year have been implemented to the full.
The states should take on a firm commitment to seek that the debt level in the long term is not above 60 per cent of GDP; during the recession, short-term fiscal incentives to mitigate the downturn could, however, be implemented.
The seminar in Slovenia is also attended by the governors of the central banks of Belgium, Estonia, Latvia, Slovenia and other countries, representatives of the IMF, the European Commission, the academic community and the media.