EU's debt laggards are hurting the fight against inflation, Austria says

VIENNA (Reuters) -Excessive debt in some EU countries is hampering the fight against inflation, Austria's finance minister said on Wednesday, adding that his country would soon press the worst offenders to get their affairs in order.

Austria, a member of the EU's self-styled "Frugal Four" alongside Denmark, Sweden and the Netherlands, has long pressured other countries, particularly its southern neighbour Italy, on their debt and public spending, even as it too has spent lavishly on measures to deal with the COVID-19 pandemic.

As he presented a budget for 2023 that foresees Austria bringing its budget deficit back within the EU's 3% limit, he said Austria would renew those efforts, this time framing them as helping the European Central Bank tackle runaway inflation.

"Europe's debts hobble all of us, hobble us as a whole in the fight against inflation. And it is member states' duty to get their budgets in order in the medium to long term," Brunner told parliament.

"In Europe we will once again be an exhorting and perhaps not a pleasant voice for everyone, calling for a return to sustainable budget policies," said Brunner, a member of Chancellor Karl Nehammer's conservatives.

The EU's Stability and Growth Pact caps budget deficits at 3% of GDP and debt at 60% of GDP but it has been suspended since the start of the pandemic. The European Commission has proposed reforming it and reinstating it in 2024.

Brunner said his aim was to ensure "the European Central Bank has the room for manoeuvre it needs in the fight against inflation", adding that it was "absurd" that the ECB is raising rates while at the same time having recently introduced an emergency programme to help heavily indebted states.

He was referring to the ECB's Transmission Protection Instrument (TPI), which was intended to stop any excessive rise in borrowing costs on bond markets for governments across the currency bloc as policy tightens. Recent increases have been larger for indebted countries like Italy, Spain and Portugal.

While those countries' debt-to-GDP ratios are over 100%, Austria's is expected to fall to 78.3% this year and 76.7% next year, according to data from Brunner's budget.

(Reporting by Francois Murphy; Editing by Nick Macfie)