–De Jager: Delaying Fiscal Consolidation Because Of Weak Growth ‘Risky’
–Belgian Deputy FinMin: But Success Depends On Restoring Growth

By Chris Cermak

WASHINGTON (MNI) – Dutch Finance Minister Jan Kees de Jager
Saturday warned of a “dangerous” overemphasis on accommodative monetary
policy over structural reform and said delaying fiscal consolidation in
Europe in the face of weak growth is “particularly risky.”

De Jager said markets have already shown the costs of relaxing
fiscal targets in terms of higher yields. Efforts to improve growth
prospects in Europe must therefore come “first and foremost” from
structural reform.

Monetary policy measures are providing “critical breathing space
but do not provide a fundamental solution to the underlying problems
many countries face today,” de Jager said in his statement prepared for
the International Monetary Fund spring meetings.

“Moreover, overemphasizing the role of accommodative monetary
policies while underemphasizing the urgency for fiscal consolidation can
be dangerous,” he said in the statement to the IMF’s steering committee,
the International Monetary and Financial Committee.

“Delaying fiscal consolidation in the face of weak growth appears
particularly risky in the current circumstances, where the debt crisis
has shown that market sentiment can change rapidly and unexpectedly to
the worse,” de Jager said. “Market pressures could exacerbate the costs
of delayed consolidation by a significant and possibly unsustainable
amount.”

But Belgium’s Deputy Finance Minister Steven Vanackere in his own
statement to the IMFC stressed that, while countries with high debt
levels have to reduce their deficits at an “adequate pace,”
consolidation must not come at the expense of economic growth.

“Success with this task (of fiscal consolidation) critically
depends on resuming more vigorous growth, reducing unemployment and
preserve social cohesion,” Vanackere said.

“The ‘paradox of the thrift’ under which aggressive upfront fiscal
consolidation lowers growth, worsens debt dynamics and paradoxically
triggers a loss of confidence, must be avoided,” he said.

Vanackere also said accommodative monetary policies and central
bank liquidity “remain justified” given the “period of fragile
recovery.” But outside of short-term support, he agreed the “far more
important task” involved structural reforms that could “enhance
productivity and international competitiveness.”

Both ministers agreed medium-term risks stemmed from outside the
Eurozone, especially from high budget deficits in the United States and
Japan, and also called for continued exchange rate rebalancing in
emerging countries like China.

In an indirect jab at the United States and China, de Jager said
that global imbalances and excessive global liquidity have “not been
adequately addressed” and said “accommodative monetary policies and
inflexible exchange rate policies could even aggravate these risks.”

** MNI Washington Bureau: 202-371-2121 **

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