ECB Warns of Fiscal Debt Risks... EU Proposes Tax Hikes Including Plastic Tax

"Fiscal Deficit at 8% of GDP... Worst Outlook Since World War II"

EU Commission: "Fiscal Funding Through Environmental Tax, Carbon Tax, and Digital Tax"

[Asia Economy Reporter Kwon Jaehee] The European Central Bank (ECB) has raised warning signs about fiscal expansion for economic stimulus.

While emphasizing expansionary fiscal policy to respond to the economic recession caused by the novel coronavirus disease (COVID-19), it has indicated that fiscal soundness must also be considered as the debt growth rate of Eurozone countries accelerates.

The European Union (EU) Commission is also moving toward raising taxes, reviewing measures to impose environmental taxes on plastic waste following the digital tax.

On the 26th (local time), the ECB announced in its semi-annual Financial Stability Report that the fiscal deficit of Eurozone countries (19 countries using the euro) is expected to reach 8% of gross domestic product (GDP) this year. This far exceeds the deficit scale during the 2008 global financial crisis. It is the result of Eurozone countries expanding fiscal policy to respond to the economic crisis caused by COVID-19. Accordingly, it warned that the debt-to-GDP ratio will increase from the current 86% to over 100%.

Looking at the debt-to-GDP ratio by Eurozone country, Greece is predicted to have the highest at 200%, Italy at 150%, and Portugal at 130%. France and Spain are expected to record around 120% each. The ECB also stated that the increase in national debt could trigger investment risk assessments for these countries. If Eurozone sovereign bonds are re-evaluated, countries with large debt such as Greece, Italy, Portugal, and Spain are likely to face another crisis.

The ECB, which has emphasized the need for expansionary fiscal policy, expressed concerns about debt because it judged the economic recovery outlook to be low. This year, the Eurozone economy is expected to experience the worst recession since World War II, and if fiscal conditions worsen, it will be difficult to escape the debt trap. Italy must refinance more than 15% of its debt by next year. Spain, France, Belgium, Portugal, and Finland also need to refinance or repay more than 10% each.

Luis de Guindos, ECB Vice President, evaluated, "The large-scale fiscal policies of Eurozone countries may temporarily mitigate the economic impact caused by COVID-19, but in the long term, there is a high risk that this debt will persist over several generations."

As warning signs light up over the fiscal debt of Eurozone countries, the EU Commission is considering the tax increase card to reduce the debt burden. The plan is to impose environmental taxes following the digital tax.

A measure to impose an environmental tax on plastic waste is under review. Along with this, taxes will also be levied on imports with high carbon emissions. According to the EU Commission, the introduction of environmental taxes is expected to generate an additional 7 billion euros in annual tax revenue, and carbon tax revenue is expected to reach 10 billion euros annually.

If the EU agrees on a joint tax revenue plan, a new tax absorbed into the EU budget will be established following value-added tax and customs duties. The EU Commission is scheduled to announce an economic recovery plan including these details on the 27th (local time).

This content was produced with the assistance of AI translation services.