UPDATE 2-EU's Gentiloni sees long economic slowdown ahead, pledges fiscal efforts

Francesco Guarascio


* Gentiloni speaking to EU lawmakers at confirmation hearing

* Says Commission will decide on stance after Nov. 7 forecast

* Sees minimum corporate tax rates as an option (Adds slowdown forecasts, tax quotes)

BRUSSELS, Oct 3 (Reuters) - The nominee to become the European Union's next economic commissioner pledged "adequate" fiscal efforts on Thursday to counter an economic slowdown in the bloc that he said could be longer than currently expected.

In his confirmation hearing before EU lawmakers, Italy's Paolo Gentiloni also said minimum corporate tax rates were one of the possible tools to tackle aggressive tax competition among EU states.

Gentiloni, a socialist former Italian prime minister, reiterated that he would seek to use the leeway allowed by EU fiscal rules to permit governments to invest for growth and would also target a reduction of public debt.

"I will also deal with an adequate use of fiscal space to face the risks of a slowdown in our economy," he said.

He said the next European Commission would decide on the recommended fiscal stance for the euro zone after it releases new economic forecasts on Nov. 7, warning that the slowdown could last longer than currently expected.

The bloc has currently a "broadly neutral" fiscal stance, despite pressure from some countries for more expansionary plans to counter recession risks. The European Central Bank also backs a more expansionary fiscal stance.

The ECB loosened policy further last month to lift growth and inflation, cutting its key rate to minus 0.5 percent, inching closer to what is the effective bottom, a level beyond which it would be counterproductive to go.

Gentiloni said the Commission's recommendation would depend on the "seriousness and duration of the slowdown" which will emerge from the EU forecasts.

That could last longer than six months or one year, as currently expected, he cautioned.

In its latest economic forecasts released in July, the EU commission predicted euro zone growth would slow to 1.2% this year from 1.9% in 2018, but saw a rebound to 1.4% in 2020.


Gentiloni also called for a review of EU fiscal rules that would make them simpler and urged an "ambitious" funding plan for an EU unemployment reinsurance scheme.

The bloc is currently debating whether to fund this scheme with loans or with more generous grants to states with high unemployment levels.

Gentiloni, who will also be in charge of taxation in the new commission that is due to take office in November, said he will continue the EU executive's fight against tax avoidance and for a fair taxation of firms in the bloc.

He said minimum corporate tax rates were one of the possible solutions to counter what he said was an unacceptably excessive tax competition within EU states.

Currently, the 28 EU countries decide freely their national tax rates for firms, with the EU having limited powers only on minimum rates on sales taxes.

Gentiloni reiterated the EU should move alone on an EU-wide tax on digital corporations if no deal on that was reached at global level in 2020. He said he was confident, although "not fully optimistic", about an international agreement by the set deadline.

In the event of no consensus, he said the EU Commission would begin working on a proposal for an EU digital tax from the third quarter of 2020.

He also said the EU should take away from EU governments the veto power on tax matters that has so far prevented the introduction of a digital tax in the bloc last year. (Reporting by Francesco Guarascio zfraguarascio; Editing by John Stonestreet and Alison Williams)