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EU ministers want EU budget rules to support investment

European Union finance ministers said that changes to EU budget rules is now under review. It should support investment in the post-pandemic economy for allowing a more realistic path in cutting some countries’ public debts. Finance ministers from the 27-nation bloc are starting discussions during a two-day summit in the Slovenian town of Brdo. This summit is about how to amend the rules to better fit changed economic realities.

European Commission Vice President Valdis Dombrovskis said that they will need a debt reduction path that is realistic for all member states. They also need to balance fiscal sustainability with the need to support the economic recovery. The rules setting limits on borrowing by European governments to protect the value of the euro, are suspended. This is until the end of 2022. So that the member states can be given more leeway in fighting the economic slump by the pandemic. Discussions on changing them are likely to last into next year. Some common themes such as the need to protect government investment are emerging now.

EU Economic Commissioner Paolo Gentiloni said that they need to avoid what happened in the previous crisis. The public investments reaching zero year by year. And this cannot happen in the next years. So they will have a discussion on the fiscal rules related to investments,which he considers would be a big effort. Green investment, aiming to reduce the Europe’s net CO2 emissions to the target of zero by 2050. French Finance Minister Bruno le Maire said that it was an idea worth discussing.

The rules says that governments should not run budget deficits higher than 3% of GDP. Countries like Italy, have debt of 160 percent of national output. This will make an annual reduction of 5 percentage points unrealistic, and that too especially if the country is to invest heavily in turning its economy green. Olaf Scholz, could become the first centre-left chancellor of Germany, Europe’s economic powerhouse, for 16 years if his party wins a national election on Sept. 26. He is showing a little appetite for a big reform.

Scholz says that the fiscal rules were flexible enough to allow massive spending during the COVID. They were also made to guarantee that public money is spent in a cautious way. Both aspects together are the right path of the centre for which Scholz is committing himself. EU finance ministers from the Netherlands, Finland, Sweden Slovakia, Czech Republic, Austria, Denmark and Latvia, traditionally representing a more frugal approach to public spending. In a joint letter they wrote that they are open to a debate on improving economic and fiscal governance. While sticking to a rules-based fiscal framework, the improvements should be made.

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Euro zone ministers expect inflation to slow in 2022

The acceleration of euro zone inflation, driven energy prices, is mostly temporary. Then the price growth will slow down again. The euro zone finance ministers agreed that, that too the next year as forecasted by the European Central Bank and the European Commission.

Paschal Donohoe, chaired the talks of the ministers in Luxembourg. In a news conference he said that there was also agreement that the inflation spike was not an argument against the transition to renewable sources of energy. This is under the EU’s ambitious plan of reducing CO2 emissions to zero by the year 2050.

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Under new rules, borrowing for investment sensible

British finance minister Rishi Sunak said that the government borrowing to fund investment was a sensible thing. This is to allow under new fiscal rules that he is likely to announce, unlike borrowing for day-to-day spending. He said that borrowing for capital investment that is going to drive up their growth is probably a sensible thing for them. And that too particularly in an environment of slightly lower interest rate. Sunak stated this in an event on the sidelines of the annual conference of Britain’s ruling Conservative Party. This event was organized by the Taxpayers’ Alliance advocacy group. Sunak stated in that event, that borrowing for more day-to-day spending is probably less something that you would want to have as part of your framework.

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IMF board to interview Georgieva-sources

The International Monetary Fund’s executive board is going to interview Managing Director Kristalina Georgieva. This is regarding that; its reviews claims that she pressured World Bank staff to alter data to favor China in her previous role. Board members were initially expected to meet with Georgieva. But spent their time working on other regular business matters.

The board members spent hours for questioning lawyers from the WilmerHale firm. This is about their World Bank investigation report which alleged that Georgieva, as the bank‘s CEO applied undue pressure on staff, to alter data in the flagship “Doing Business” report to benefit China. Then, an IMF spokesperson said that the IMF board remains committed to a thorough, objective, and timely review of the matter. Georgieva has strongly denied the accusations.

The upcoming interviews could prove pivotal in either increasing support for Georgieva. This is with many IMF shareholders are keen to wrap up the board’s deliberations on the matter. The fund’s most influential member governments, including the top shareholder the United States, have withheld public judgment. The World Bank tasked WilmerHale with investigating the “Doing Business” data irregularities identified in 2020. The law firm’s report contends Georgieva. The former World Bank President Jim Yong Kim’s office pressured staff to manipulate data so that the China’s global ranking in the “Doing Business 2018” study of investment climates rose to 78th from 85th.

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