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Euro zone ministers back tighter fiscal stance for 2024

FILE PHOTO: European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium

BRUSSELS (Reuters) - Euro zone finance ministers on Monday backed a European Commission recommendation to start tightening fiscal policy, gradually phasing out government support against high energy prices to business and households.

The European Commission called last week on EU governments to gradually start tightening fiscal policy since an expected technical recession did not materialise, the labour market was very tight and borrowing costs were rising fast as the European Central Bank was working to bring down high inflation.

"While uncertainty surrounding the outlook, notably in relation to geopolitical and energy related factors, remains elevated, risks to growth appear more balanced than previously," the ministers said in a statement.

"We agree that over 2023-24, prudent fiscal policies should aim at ensuring medium-term debt sustainability, while raising potential growth in a sustainable manner and addressing the green and digital transitions and resilience objectives through investment and reforms," they said.

"In light of economic prospects and in a context of high inflation and tighter financing conditions, we reiterate that broad-based fiscal stimulus to aggregate demand is not warranted," they said.

The ministers repeated their pledge to better coordinate policies supporting the economy against high energy prices so as not to put poorer countries, which cannot afford as much energy subsidies as the richer ones, at a competitive disadvantage.

"Absent renewed price shocks, we will continue to phase out energy support measures, which would also contribute to reducing government deficits," the ministers said in their statement.

(Reporting by Jan Strupczewski; Editing by Sharon Singleton)