site.btaIMF Chief Georgieva Urges EU to Harmonize VAT, Keep Emissions Trading System

EU should harmonize value added tax and keep its emissions trading system, International Monetary Fund (IMF) Managing Director Kristalina Georgieva said at a meeting with journalists in Brussels on Thursday. Georgieva was speaking ahead of the presentation of the IMF’s assessment of the euro area’s common financial policies, which the Eurogroup discussed at its meeting in Luxembourg.

VAT and the emissions system have served the EU well, and the goal should be to harmonize them across Europe, Georgieva said in answer to a BTA question. She said further convergence of European tax systems is needed. “The philosophy of the single market is harmonization. In tax, there is a lot that could be done for harmonization,” she added.

On the emissions trading system, Georgieva said that some question whether now is the time to ease it. The IMF believes, however, that Europe can achieve energy independence only by developing renewable energy sources. Georgieva said the system encourages the development of clean production.

The IMF chief also said that the world is facing challenges in which countries are not equally vulnerable. Georgieva explained that European producers of nuclear or renewable energy are less affected by price movements on energy markets.

Policymakers should act not on the basis of hope, but on the basis of caution, Georgieva said. The quality of leadership is very important: when leaders are honest, people are willing to accept difficulties, she added. What is best for the EU may not be the easiest thing politically, Georgieva said.

Georgieva said fiscal support in response to the current fuel price crisis should be limited and temporary, while 80% of measures so far do not meet the requirement to be targeted. She backed the European Central Bank’s monetary policy for containing inflation. She urged EU countries to be ready for further crises and to use public funds with greater care, without creating the impression among citizens that they will be supported every time.

Georgieva said the rise in inflation indicators will be short-term and fuel prices have so far not reached the worst expectations. Even if the war in the Middle East were to end on Thursday, restoring supplies to pre-war levels would take two to three months, she said. Georgieva said there is a real risk of recession if no solution to this crisis is found in the coming months.

She noted that financial security is increasingly threatened by the development of artificial intelligence. Georgieva said she expects the cost of cybersecurity to rise significantly. “It is amazing how much neglect and ignorance there is today on the cybersecurity front,” she said.

Georgieva also said that sanctions against Russia and the shift of the Russian economy into war mode have pushed interest rates there higher, while the country’s economic growth is declining. High fuel prices give Russia a breather, but its buffers have been sharply depleted and therefore need to be rebuilt at the expense of investment in the economy, she explained. Medium- and long-term prospects are worsening, Russia has lost many young people, sanctions are affecting technological development, and fuel production is hampered by the lack of the technology needed to expand, she said. Georgieva called the war “a tragedy for Ukraine and for Russia”.