Eurozone to forgo budget belt-tightening for now

European Commissioner for Economy Paolo Gentiloni at the presser following the Eurogroup meeting on 15 March 2021. [Council Newsroom]

Eurozone finance ministers said Monday (15 March) they would not tighten spending given the continuing pandemic in Europe, but warned that soaring debt levels would eventually have to be fixed.

Meeting by videoconference, the 19 ministers from countries that use the currency agreed that pulling back on the spending too soon could stifle a recovery.

“We’re united and we’re determined in our efforts to protect jobs to protect businesses and to protect our citizens in these very acute days of a continued health crisis,” said Eurogroup head Paschal Donohoe, who is also Irish finance minister.

Europe, like much of the globe, has suffered a historic recession due to the pandemic. It is struggling in its vaccination campaign, which is considered the surest way to get the economy back on track.

Given the setback, as well as a wave of limited lockdowns across the continent, the Eurogroup ministers said they would “continue to protect our economy” with the “necessary level of fiscal support”.

“For the time being, and as long as the acute health emergency prevails, broad fiscal measures remain necessary to protect citizens and companies,” they said in a statement.

‘Big mistake’

The decision by ministers to keep spending is a marked contrast from the eurozone debt crisis, when powerful Germany insisted on balanced budget policies amongst its eurozone partners.

“We will not repeat the mistake of the last crisis,” said EU economic affairs commissioner Paolo Gentiloni.

This time Germany has changed its philosophy and pushed a EU recovery plan in July worth €750 billion that is jointly financed by the 27 member states.

“I think it would be a big mistake if … the beginning of the upswing, which we hope will start after the corona pandemic, was interrupted…” said German Finance Minister Olaf Scholz.

Ministers on Monday however signalled that the road to sound finances would be found again once the recovery had taken hold.

“Once the recovery is firmly under way, euro area member states should address the increased public debt levels”, the statement said.

The ministers also took note of a recommendation by the EU executive to suspend rules on overspending until the end of 2022.

This has allowed countries to open the money taps to rescue their economies and help companies survive the pandemic and not risk sanctions by Brussels.

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