Analysts at the Australia and New Zealand Banking Group (ANZ) are of the opinion that the European Union (EU) requires a drastic thought process to take benefits of the fiscal stimulus.
Key quotes
“As the European Central Bank (ECB) stretches the limits of monetary easing, attention is turning to fiscal policy. The euro area (EA) has potential fiscal space of 2.0% of GDP.”
“Potential fiscal space is calculated using a narrow criteria, based purely on the EA budget deficit. It is unlikely to materialise as rules based fiscal policy limits the growth of the public spending path.”
“Hope of a large-scale fiscal boot for the EA will probably be disappointed. We estimate that an expansion closer to 0.25-0.5% of GDP in 2020 is more likely.”
“An overhaul of the current rules and a more medium-term focus on policy settings is required.”
“That will leave an over-onus on the ECB to support reflation. The monetary policy framework needs reviewing, especially in light of the considerable divisions that emerged over the latest easing.”
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