European Union member states face a “risky” financial future ahead as Brussels begins to look at tightening the strings of fiscal rules within the bloc. Economic analyst Zsolt Darvas from the Bruegel think tank in Brussels has warned that some EU countries need “enormous” fiscal adjustment to manage spirally debts as a result of the Coronavirus pandemic. He added that forcing EU states to cut government spending too rapidly could jeopardize economic future growth in the Eurozone.
Mr Darvas told Euronews: “Southern European countries have high levels of debt.
“Some of them could be close to being in a risky situation, especially after the European Central Bank will end quantitative easing because, by that time, the interest rates might go up.
“We made some calculations and found that some southern European countries would need to make an enormous fiscal adjustment in the order of 5-6% of GDP [to meet] that rule, which is simply, I think, inconceivable.
“It’s impossible that those countries would be able to make that.
“So, for this particular debt reduction rule, many, many countries will violate that.”
Mr Darvas added the EU Commission needed to learn from the previous Eurozone crisis and not pressure European Capital to slash spending too rapidly.
He said: “Now the main question is the speed of that adjustment.
“I just hope the European Commission learnt the lesson from the previous crisis, the global financial crisis, and the euro crisis, that a too rapid fiscal consolidation can undermine the recovery.”
It comes a week after the Irish Government announced that €1 billion is to be handed over from the European Union coffers to Dublin in the wake of Brexit.
Under the EU’s Brexit Adjustment Reserve Ireland is due to receive a hefty sum in order to support the Irish economy from the shock of the UK’s departure from the bloc.
Britain is a key trade partner for the Republic of Ireland while trade on the island has been disrupted by the controversial Northern Ireland protocol agreed between London and Brussels.
Minister Michael McGrath told members of the Irish parliament, the Dáil: “The lifetime of this parliament Ceann Comhairle [Mr Speaker] will see Ireland mark 50 years of membership of the European Union.
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“Our membership has played an important role in Ireland’s social, economic, and political development in the intervening five decades.
“Throughout that period we have benefited from the solidarity that comes through EU membership.
“This solidarity has never been more evident than in the Brexit negotiations.”
“Ireland will receive just over €1 billion of funding from the Brexit Adjustment Reserve, the biggest single allocation for any member state representing just over 20 percent of the total fund,” announced Mr McGrath.