FRANKFURT (MNI) – The long-term gains of consolidating public
finances outweigh the short-term pain, the European Central Bank said in
its Monthly Bulletin on Thursday.
The central bank also said that studies suggested that early
adjustments should be more effective and less painful.
The ECB’s study “clearly suggest that the long-term economic gains
of restoring sound fiscal positions in the euro area far outweigh the
short-run costs,” the bulletin reads.
While fiscal stimulus had been important to drive the recovery,
“securing a self-sustaining recovery crucially depends on there being a
credible fiscal exit and consolidation strategy in place that supports
confidence in the longer-term sustainability of public finances,” the
ECB said.
“Countries that delay fiscal consolidation contribute to the fiscal
problems in the euro area as whole. The longer the fiscal correction is
postponed, the higher the risk of reputation and confidence losses, the
more painful the short-run adjustment, and the further away the long-run
benefits of fiscal consolidation,” it added.
ECB Executive Board member Juergen Stark said last week that while
consolidation efforts may weigh short-term growth, the long-term
benefits far exceed that short-term drawbacks.
The central bank’s study further suggested “that the bulk of the
fiscal adjustment should be borne on the expenditure side, in line with
the empirical evidence available, which points to a higher degree of
success for expenditure-based fiscal consolidation.”
–Frankfurt bureau; +49-69-720142; frankfurt@marketnews.com
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