EU executive urges euro zone to use fiscal policy to help ECB

European Union flags fly outside the European Commission headquarters in Brussels, Belgium, December 12, 2019. REUTERS/Yves Herman

BRUSSELS (Reuters) - The European Commission called on euro zone governments on Tuesday to use fiscal policy and to invest in their economies, if possible, to help the European Central Bank’s efforts to boost inflation and job creation.

In annual recommendations for the 19 countries that share the euro, the EU executive said governments should also start talks on setting up a bank deposit insurance scheme and added it would propose a pan-EU unemployment reinsurance scheme.

“The European Central Bank is maintaining an accommodative monetary policy to help inflation edge towards its medium-term inflation objective, while supporting growth and job creation,” the Commission said.

The Commission added, however, that countries should only increase spending if they could afford it under EU budget rules, which limit government borrowing to underpin the euro. That mainly points to Germany and the Netherlands, which have large budget surpluses and relatively low public debt.

Italy, with the second-highest public debt in Europe relative to its economy, should focus on bringing that down, rather than borrowing more to stimulate growth, the Commission said.

“I invite countries with fiscal space to further boost investment and those with a high level of debt to bring it down,” Commission Vice President Valdis Dombrovskis said.

The Commission expects euro zone economic growth at 1.2% next year and in 2021, against 1.1% in 2019.

Reporting by Jan Strupczewski; Editing by Philip Blenkinsop and Pravin Char