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Europe’s governments are in the midst of a policy re-think after three years of slimming budgets as they face up to a deepening recession in the euro area and a record unemployment rate that’s exceeded 12 per cent. Still in doubt for economists is what kind of stimulus will actually be delivered and what effect it could have in the crisis-torn 17-member currency bloc.
Euro area governments are already easing up on fiscal consolidation, with countries including France and Spain poised to receive more time to meet European Union budget deficit goals. That means less pressure to take tax and spending steps to plug fiscal shortfalls caused by economic weakness.
Italy’s new government is trying to reverse some of its predecessor’s policies such as a pending sales tax increase. Spain has introduced plans to support the creation of new businesses and invest in research and development.
The ECB is also debating what more it can do. The bank’s president, Mario Draghi, told reporters after the G7 talks that it’s considering buying asset-backed securities among options to support lending to small and medium-sized companies.