Commission paper highlights euro challenges

On monetary policy the paper argues that the ECB's key difficulty will be with smaller euro-area countries whose inflation performance is actually diverging from the larger economies. The report also reviews the fiscal policy of the euro-area and warns of the danger of fiscal policy becoming procyclical, with government's forced to raise taxes during a downturn in order to stay within the strictures of the stability and growth pact. The main challenge therefore is for countries to achieve a neutral fiscal stance over the cycle.

The report also calls for improved cooperation between euro-area economies, arguing "Member states should adhere to the principle of informing partner countries and the Commission befroe the adoption of major economic policy measures"

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