RIGA, Latvia (MNI) – If fiscal adjustment needs to be undertaken by
a country then it is advisable to get as much of it out of the way as
quickly as possible and thus realize more quickly the beneficial medium-
to long-term effects, European Central Bank Executive Board member Joerg
Asmussen said Tuesday.
Asmussen, in a text of remarks provided by the ECB for delivery at
an IMF/Bank of Latvia conference, said the experience of Baltic
economies during the crisis shows that “even if fiscal consolidation
weighs on the growth prospects in the short term, it has sizeable
positive effects in the medium to long term.”
Frontloading adjustment also turns out to be politically
advantageous, he argued. Latvia “was able to capture the sense of
urgency prevailing among the population and mobilise it to support
adjustment” so that the painful decisions could be implemented before
“adjustment fatigue” hindered the process, he observed.
“The bottom line is this: when adjustment is inevitable, it is
better to take the medicine right away than to let the fever rise for
months,” Asmussen said. “This is undoubtedly an important factor that
explains the different trajectories of the Baltics and certain southern
European countries.”
Turning to the subject of euro adoption, Asmussen stressed the need
for sustainable convergence that continues after entry into the common
currency.
“Measures to reduce inflation temporarily or easily reversible
measures to lower the fiscal deficit do not represent sustainable
convergence,” he cautioned. “The decision to adopt the euro is a very
fundamental one and should not be taken lightly.”
The euro area is not a closed shop and remains open to any EU
member showing sustainable convergence, Asmussen said.
–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com
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