Euro area countries have mobilised around 1% of their GDP (€120 billion) to fight against the economic fallout from the coronavirus but continued to disagree over deploying a joint fiscal stimulus, after a joint teleconference held on Monday (16 March).
The coronavirus COVID-19 is impacting hospitals, businesses and stock markets in an unprecedented way.
The pandemic and the measures to contain it are expected to bring the European economy into recession this year.
Against this backdrop, European finance ministers discussed an economic package to sustain their ailing health systems and companies, especially SMEs.
However, the Eurogroup in inclusive format (including euro area and non-euro EU members) fell short of adopting a joint European stimulus demanded by some members – especially France and Italy – to tackle the fallout of the virus.
“We agreed that an immediate, ambitious and co-ordinated policy response is needed,” said a statement after the five-hour teleconference held by finance ministers.
The bulk of the response, however, continued to come from national governments.
According to the European Commission, the total fiscal support to the economy given so far in Europe represents, on average, 1% of the GDP. Including only euro area countries this would amount to around €120 billion.
In addition, euro area governments have offered liquidity facilities of at least 10% of GDP, including public guarantee schemes and deferred tax payments.
Member states know that this volume of funds will be insufficient. “These figures could be much larger going forward,” the statement said.
On top of the national solutions, the European Commission has promised to reallocate unspent structural funds amounting to €37 billion to support health systems, SMEs and most affected sectors and workers. The EU executive is also looking into making a further €28 billion of structural funds fully eligible for meeting these expenditures.
The European Investment Bank, backed by the Commission, will mobilise €8 billion in lending for SMEs, backed by the EU budget, and is planning to increase this amount to €20 billion.
However, ministers failed to agree on a proposal to increase the capital of the EIB in order to strengthen its firepower or involving the European Stability Mechanism, currently holding €410 billion at its disposal. Using the ESM’s firepower would help to send a clear signal to investors, analysts said, after days of record losses in the stock markets and renewed turbulences in the debt market.
“We are not taking any possible solutions off the table”, said Eurogroup President Mario Centeno. “Rest assured that we will defend the euro with everything we have got,” he told reporters in a virtual press conference after the ministers’ call.
However, Germany’s finance minister, Olaf Scholz, said the debate on the involvement of the ESM at this stage was still “premature”.
Still, Echoing ECB’s Mario Draghi famous pledge, Centeno said that “we will do whatever it takes and more, to restore confidence and support a rapid recovery”.
“Whatever further coordinated and decisive policy is needed, we stand ready to take it,” he said adding that they would act “swiftly.”
Centeno stressed that the measures taken so far represented only a “first step”, and he asked the Commission and the ESM “to explore ways, within their mandates, to address the challenges posed by the coronavirus.
The Eurogroup also welcomed the full use of the flexibility included in the Stability and Growth pact, the EU’s fiscal rules and the loose implementation of state aid rules to facilitate national spending, as promised by the Commission.
The ministers agreed to hold regular calls, at least once a week, to follow the developments and decide on further actions.
Centeno had raised expectations before the discussion started by saying that ”a powerful response is on the way”.
The EU’s Commissioner for the Economy, the Italian Paolo Gentiloni, in favour of delivering an ambitious European response, warned after the conference call that “we will need unprecedented coordination on fiscal issues to restore confidence.”
Spain’s Economy minister, Nadia Calviño, also supported using all available European instruments to contain the spread of the virus.
“We have to do, and we are going to do everything that is necessary, when it is necessary and how it is necessary,” she said ahead of the call.
However, Calviño was reluctant to join his French and Italian colleagues in asking for a great European fiscal stimulus at this time.
“We continue to work tirelessly and hand in hand to prepare for the economic recovery once we are out of the crisis,” wrote on his Twitter account French finance minister, Bruno Le Maire, after the teleconference.