ECB’s Praet calls for European austerity review

Peter Praet, a European Central Bank executive board member, yesterday warned against eurozone governments achieving fiscal consolidation predominantly through tax rate increases and cuts in government investment.

Relying on tax increases, Praet said, is only "exacerbating the burden on already compliant taxpayers", and has had "substantial negative effects" on disposable income and demand, as well as antagonising Europe's electorates. "Due protection of the most vulnerable is needed here," he said.

Speaking in Brussels, Praet also stressed that fiscal adjustment has "relied disproportionally" on cuts in government investment, which he said has weakened the prospects for long-term growth.

"Going forward, there is a need to focus adjustment on unproductive expenditure while as far as possible safeguarding government expenditure that is conducive to long-term growth," he said.