European governments should not allow extra discretionary spending to add to the budget slippage which is already being seen as growth slows in the region, EU Monetary Affairs Commissioner Pedro Solbes said today.
He said EU policymakers faced testing times with short-term economic prospects worsening in the wake of the September 11 attacks on U.S. cities and he repeated a forecast that the euro zone economy would grow by around 1.5 per cent in 2001.
"While the economic policies of the 1990s meant euro zone monetary and fiscal policy had more room for manoeuvre in the past, budgets should not become too expansionary," he said.
Fiscal slippage is likely as tax revenues are depressed and spending on social security rises and Solbes said states should not try to offer slowing economies more support than was already being provided by these so-called automatic stabilisers.
"A discretionary fiscal expansion is not considered desirable because of two reasons," he said.
"First, past experience tells us that discretionary fiscal policy is not an efficient stabilisation tool. "Second, it could even be counterproductive if it were to jeopardise the soundness of public finances which has been regained during a decade of efforts."
