by Jan Strupczewski

BRUSSELS (Reuters) – European Union heads of state and government will back Friday a slightly tighter fiscal policy for the euro zone next year, to help reduce inflation and make more stable public finances.

This decision comes after the finance ministers of the euro zone countries agreed on March 11 on the budgetary policy guidelines for 2025, in order to take into account new budgetary rules.

“The European Council supports the recommendation on the economic policy of the euro area,” reads draft conclusions.

According to this recommendation, the new fiscal rules would require a slightly restrictive overall fiscal policy in the euro area in 2025.

“This would be appropriate in light of the current macroeconomic outlook, the need to continue improving fiscal sustainability and in order to support the ongoing disinflationary process, while policies should remain flexible in view of the prevailing uncertainty.” he says in this recommendation.

The European Commission forecasts that the euro zone’s overall budget deficit will decline to 2.8% of gross domestic product (GDP) in 2024, from 3.2% in 2023, before falling slightly to 2.7% in 2025.

This should help bring inflation down to 2.3% in 2024 then to 2.0% in 2025, reaching 1.9% in 2026, according to forecasts from the European Central Bank.

European leaders will also back a plan agreed by EU finance ministers on how to attract private capital to Europe to finance its green transition and digitalization, while competing with China and the United States in the field of technologies and raw materials.

This plan envisages the creation of a Capital Markets Union (CMU) across the 27 countries that make up the EU, reducing barriers to private investment across the bloc’s borders.

“Creating an efficient and well-functioning single capital market through the development of the CMU is a necessity for Europe,” said Eurogroup President Paschal Donohoe.

“The CMU is one of the key elements of our focus on the competitiveness of the euro area, which is imperative to respond to the profound changes taking place in the global economic landscape,” he said.

( Camille Raynaud)

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