ECB’s Makhlouf: Fiscal Policy Key to Stabilising the Economy

19 July 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Friday welcomed the European Union’s revised economic governance framework highlighting the importance of fiscal policy.

In a blog post on the website of the Central Bank of Ireland, which he heads, Makhlouf said, ‘The fiscal framework is a key component of ensuring the stable macroeconomic environment needed to enable sustainable growth and, ultimately, an improvement in people’s living standards.  Along with fiscal policy, monetary policy also has a central role to play in stabilising the economy’.

The reforms in the EU’s economic governance framework would help governments set fiscal policies that would support sustainable growth and inflation, he said.

In Ireland, budgetary policy was used to address the cases that could not be resolved by monetary policy, he said.

‘With the economy at full employment, and to guard against the risk of overheating, budgetary policy has a key role to play to manage overall levels of demand in the economy and to avoid unnecessarily stoking inflationary pressures in Ireland (which monetary policy, because it operates across the euro area, would not be able to address)’, he said.

In a context in which recent Irish budgets had been expansionary, an analysis published by the Central Bank of Ireland showed that ‘additional fiscal expansion above the 5% rule would add to inflation and risk triggering potentially damaging overheating dynamics’, he said.