IMF, appeal to France and Italy: "Tighten the belts". What is the outlook for Europe?

2024-04-22 14:35:25Biznes SHKRUAR NGA REDAKSIA VOX

 

Italy and France will need to cut spending faster than currently planned to keep their debt under control, while Germany will need to loosen its chains to revive growth. The clear warning was made by the International Monetary Fund.

Finance ministers from around the world met in Washington last week to compare assessments and hear from IMF and World Bank experts on a range of issues ranging from fiscal policy to global growth and aid to the poorest countries.

While the IMF's advice is not binding on countries that do not receive its assistance, its recent musings on Italy, France and Germany are likely to bring back unpleasant memories of the debt crisis of the last decade.

In its outlook for Europe, the IMF stated that advanced European economies with relatively high levels of debt should implement more significant and burdensome fiscal consolidation than is foreseen by the current policies of the authorities, such as Belgium, France and Italy. .

The global lender's European chief, Alfred Kammer, said the Italian government must end an "ineffective" home renovation incentive, known locally as Superbonus, which is currently expected to be phased out by the end of next year.

France, on the other hand, could reap a "significant return" if it were freed from energy subsidies that were imposed after Russia's invasion of Ukraine in 2022, Kammer added. Germany, on the other hand, had "fiscal space" to invest in digitization and public infrastructure and to support companies' research and development.

The IMF estimates that Germany could increase the debt curb, which limits the budget deficit, from 0.35% of gross domestic product to 1.35%, reducing the debt-to-GDP ratio.

Italy expects a budget deficit of 4.3% of GDP this year, 3.7% next year and 3% in 2026, although the country's finance minister said much would depend on the European Union's new fiscal rules.

France raised its deficit forecast last week to 5.1% of GDP and said it would seek an additional 10 billion euros in budget cuts. Paris has phased out many of its cost-of-living subsidies, but the tax credit on electricity bills used to cap electricity prices has only been partially phased out and will be completely phased out in February 2025.

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