Despite the current economic growth many Eurozone countries are increasing their budget deficit instead of reducing debt to prepare for the next economic decline, the head of the International Monetary Fund’s European department Poul Thomsen emphasized during a news briefing on the sidelines of the IMF’s and World bank’s annual meeting in Bali, Indonesia.
“They need to reduce debt during the good times to have space during the bad times,” Thomsen said calling it his main message to Europe, Deutsche Welle reported.
Without mentioning Italy specifically, he referenced Rome by expressing concern about highly indebted Eurozone countries that he warned could face recession because they would have no money to counter it once the next economic downturn comes.
Eurozone countries there is a concern that the countries with the least fiscal space are not using this window of opportunity sufficiently to rebuild their fiscal buffers, leaving them vulnerable to potentially difficult adjustments when economic conditions deteriorate.
His advice was to rebuild fiscal space and place public debt on a firm downward trajectory. He said that gradual fiscal consolidation would help ensure that, when the next adverse shock hits, the Eurozone is on a stronger footing and has the necessary buffers.
In late September, the Italian government, elected in March, agreed to set the gross domestic product deficit at 2.4 percent for 2019.
This move caused concern among the Eurozone finance ministers claiming that such a budget plan would result in an economic slowdown and public debt increase, while Italy already ranks second among EU states in terms of public debts.
Italy is set to present its full draft budget for 2019 to the European Commission by October 15.