A tightening in budget policy may be appropriate as euro zone economic recovery gathers steam this year, the European Commission said today.
Mr Klaus Regling, director general of the EC's economic and monetary affairs department, said a recovery was under way in the euro zone that growth could accelerate in the in the fourth quarter and next year.
"Fiscal policy could see a moderate tightening in the course of this year, which would be appropriate against this backdrop," he told a press briefing on the first quarterly report on the euro zone economy to be issued by the European Commission.
The report said that a recovery should continue but added that euro zone consumer demand was unlikely to drive growth at this stage and that risks remained.
US households were still highly leveraged and the possibility of a renewed downturn in the world's biggest economy could not be ruled out if private consumption became unsustainable and began to decline, the report said.
The global economy could also potentially suffer if oil prices were driven higher, while the crisis in Argentina had heightened uncertainties surrounding emerging market economies.
Nevertheless, Mr Regling said the risks were now more balanced than they had been last October. "It is hard to see why the gradual recovery we are seeing at the moment should be derailed," he said.
The European Commission was optimistic about the outlook for inflation in the euro zone and said a spike in January's inflation rate had proved transitory, as expected.
Wage demands had so far been subdued, but developments in some euro zone countries, notably Germany, warranted close attention. "High wage claims in some member states jeopardise wage formation conducive to sustained employment growth and price stability," the EU report said.