Fiscal cuts will not hamper Eurozone economic recovery

BUDGET deficit cuts planned by many Eurozone countries to fight the sovereign debt crisis will dampen economic growth only marginally, European Union President Herman Van Rompuy said yesterday.

“In the short term, the acceleration of fiscal consolidation will hamper growth in the Eurozone as a whole only marginally,” Van Rompuy told the Brussels Economic Forum conference.

He added that the budget cuts could in fact bolster growth because they will boost investor confidence in the euro zone, he added.

Van Rompuy’s colleague Olli Rehn , the economic and monetary affairs commissioner, told the same conference that that reforms may boost the Eurozone’s economic growth to about 2 per cent in the medium term, but without them the economy would expand at 0.5 per cent at best.

Van Rompuy reiterated that Eurozone governments appeared strongly committed to strengthen the budget deficit rules and increase macroeconomic cooperation to avoid any repeat of the debt crisis that had resulted from Greece’s fiscal woes.