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EU fiscal policy sparks concerns over deflation

Friday 17 September 2010 - by Andrew Hickley

UK business secretary Vince Cable has warned that collective fiscal tightening is exporting deflation across Europe.

Speaking at the Königswinter Conference in London yesterday, Cable also said there are now cases where countries could consider changing their approaches to monetary constriction, in order to counter this threat.

"We believe there needs to be greater discipline on the EU budget and we need to work together on reform. The EU budget and gross contributions are increasing, at a time when Member States can least afford it.

"It might be useful too, to discuss ideas where we may have a difference in emphasis. It is helpful on a political level to be sharing the pain of fiscal consolidation, but economically there must be concern that EU countries are exporting deflation to each other through collective fiscal tightening.

"There is a case for a differentiated approach, dependent on country circumstances, and also for recognising that there are structural imbalances reflected in the current account, given the lack of flexibility in monetary and fiscal policy."


Cable also called for debate over reforms which could potentially speed up Europe's recovery from the financial crisis. While calling them 'tricky issues,' he remains positive over Europe's financial future.

"Europe urgently needs supply side reforms to improve its growth prospects - potential growth across the EU is forecast to recover to just 1.7 per cent by 2014.

"What specifically can we do to accelerate this process? What specifically can we do to accelerate this process? How realistic is it to inject dynamism through a fresh opening up of the EU Single Market as Mario Monti has proposed?

"These are tricky issues, and there are others, but I hope we shall receive good, creative feedback. I very much look forward to future meetings."


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