EU Ministers discussing inflation surges and EU budget rule reforms

Brussels — The European Union’s finance minister will discuss on Monday the rise in consumer prices, the impact it will have on wages, and the changes we want to make to Block’s budget rules to support investment and reduce debt.

Inflation rose 4.1% year-on-year in 19 euro-sharing countries last month, up from 3.4% in September. Ministers are beginning to worry that the rise will encourage stronger wage growth and create an inflationary spiral.

“We always expected inflation to rise this year, but this is faster than expected, and we see levels that haven’t been seen for a long time,” said a senior EU official involved in the meeting. “4.1 percent should generate controversy.”

The October surge was primarily caused by a 23.5% rise in energy prices, probably not reaching pre-COVID-19 pandemic levels, but will eventually fall again, officials said.

“We need to return to better inflation, but the process is slower than expected, and the risk of secondary effects on wage formation clearly needs to be taken seriously and monitored,” officials said. Stated.

The European Central Bank, which is responsible for keeping inflation at 2% in the medium term, briefly explains to the Minister. ECB Chief Economist Philip Lane reiterated the bank’s message in a comment released Monday by the Spanish newspaper El País that the rise in highs was temporary.

European Central Bank
The headquarters of the European Central Bank (ECB) will be seen at sunset prior to the ECB’s board meeting later this week in Frankfurt, Germany, on October 25, 2021. (Kai Pfaffenbach / Reuters)

“We believe that next year’s (supply) bottleneck will ease and energy prices will fall or stabilize,” Lane said. “This current period of inflation is very unusual and temporary and is not a sign of a chronic situation.”

“Long journey”

Ministers talk about planned reforms of EU budget rules to meet post-pandemic economic realities of high public debt and large investment needs to combat climate change and support growth. Start the discussion.

The rule requires an annual public debt reduction rate that is too ambitious for most EU countries. Fiscal frameworks aimed at keeping the budget deficit below 3% of GDP and debt below 60% to protect the value of the euro also provide little clear support for government investment.

Eurozone governments are divided to the extent of the necessary changes. Countries in the southern EU are more enthusiastic about easing debt reduction rules and giving them a special position in investment than in northern states.

Officials said the majority of the 2022 debate would need a balance “between prudent policies and financial support for growth.”

“This is a long journey. You shouldn’t try to do it in a hurry,” he said.

By Jan Strupczewski