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Eurozone set to spend more to boost economy

Eurozone finance ministers are set to agree this month on a more growth-friendly fiscal policy, three European Union officials said on Friday, a change from current targets that would pave the way for more spending in Germany amid fears of a downturn.



Repeated attempts to boost investment and growth in the 19-country bloc have failed in past years as Germany kept posting large budget surpluses despite calls to spend more.

But now, amid fresh recession fears in Germany and concerns about the impact on the global economy of the coronavirus outbreak in China, eurozone countries have reached a preliminary agreement to increase spending in the event of a downturn.

“If downside risks were to materialize, fiscal responses should be differentiated, aiming for a more supportive stance at the aggregate level,” a draft text agreed by eurozone envoys said, according to an official who had access to it.

Two other senior EU officials confirmed the preliminary compromise, which needs to be formalized by eurozone finance ministers at a meeting in Brussels on February 17.

The text, agreed after lengthy negotiations, stresses that higher spending would need to be compliant with EU fiscal rules which mandate a deficit below 3 percent of gross domestic product, among other requirements.

Despite its restrictions, the move would mark a departure from past statements in which eurozone ministers had recommended a “broadly neutral” fiscal stance, despite weak economic growth.

The change would allow governments with more solid finances to focus more on growth rather than stability as they begin planning for next year’s national budgets. It could also send a positive message to investors that the bloc is finally heeding calls from the European Central Bank to complement its loose monetary policy with a fiscal push that could make it more effective.

Germany has long insisted on keeping budgets under tight control in a bid to reduce imbalances in countries of the bloc with high levels of debt, like Italy or Greece, but views in Berlin may be slowly changing after weak growth last year and concerns that Germany may have fallen into recession in the last quarter because of tumbling industry output.