On Monday 16 March, political leaders at the G7 and euro-area level once again demonstrated their willingness to mobilise all the means at their disposal to cushion the shock wave that the coronavirus pandemic is sending through the world economy.
The President of the European Council, Charles Michel, gave a “truthful” speech at the end of the meeting of the leaders of the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States): the crisis is “serious, it is going to be long and difficult”. He recalled that the 27 European Union leaders will meet again by videoconference on Tuesday 17 March to take stock of the European response to the coronavirus from an economic as well as a health and safety point of view.
Mr Michel, who had already met with the German and French leaders and the President of the European Commission, Ursula von der Leyen, that morning, assured the full determination of the European and national political levels to protect citizens and reduce the negative damage inflicted on businesses. “We hope to extend this mobilisation to other G20 countries as well”, he said.
At his side, Mrs von der Leyen promised that the European institution “will not hesitate to take new measures” after those presented last Friday (see EUROPE 12446/1). “We need to restore confidence in the global economy” by using “all the instruments at our disposal”, she said, stressing the importance of supporting investment.
In their communiqué, the leaders of the G7 countries commit to do “whatever is necessary” to ensure “a robust global response” to the “human tragedy” of the coronavirus.
In addition to unfailing support for national health systems, the world’s seven major economies are calling for the mobilisation of all fiscal and monetary instruments to provide “immediate” support to workers and enterprises, especially SMEs. Central banks are urged to act to preserve financial stability as financial markets continued to unwind on Monday.
The G7, currently chaired by the United States, says it is prepared to “address disturbances to international supply chains and continue our work to facilitate international trade”.
Each week, the Finance Ministers of the member countries will take stock of the situation and identify, if necessary, new measures.
See the G7 communiqué: http://bit.ly/2WiNfoU
Eurogroup lists available anti-crisis measures
On the basis of an earlier declaration, in which it expressed its readiness to draw the budgetary weapon (see EUROPE 12439/16), the Eurogroup, which finally met by videoconference, discussed the appropriate measures to be taken in the most coordinated way possible to deal with the coronavirus pandemic.
In its statement, the Eurogroup said it was ready to do "what ever it takes" to restore confidence and support a rapid recovery.
Based on preliminary estimates of the European Commission, it evaluates fiscal measures already decided at national and European levels at 1% of GDP for 2020 in addition to the impact of automatic stabilisers. Liquidity facilities of at least 10% of GDP have been provided, consisting of public guarantee schemes and deferred tax payments. These figures could be much larger going forward, the Eurogroup said in its statement.
The Eurogroup, which will now meet every week via videoconference, asked the European Commission and the European stability mechanism (ESM) to explore possible measures within their mandate to help further in the fight against the coronavirus.
The president of the ESM, Klaus Regling, said the permanent rescue fund of the euro area has a lending capacity of €410 billion and still unused competencies like the capacity to provide credit lines to membre states. The situation now is very different than the one 10 years ago as "Member states continue to have market access at historically very low interest rates".
At the start of the ministerial meeting, the President of the Eurogroup, Mário Centeno, listed the following actions: – initiatives to contain and treat the disease; – the provision of liquidity to companies; – support for workers and families; – other measures enabling economic actors to make the link with economic recovery.
“We will ensure that EU fiscal rules and State Aid rules will not stand in the way of supporting our economy. Flexibility is there and will be fully used”, Mr Centeno promised. “The virus has not reached its peak. We must not kid ourselves. These are the first steps in a temporary but long fight”, he added, comparing the current situation of the economy to “war-like times”.
See the Eurogroup statement: http://bit.ly/3d7inh4
Probable return of the economic recession in 2020
While it was still forecasting at the end of February that GDP growth would slow to 1.2% in the euro area and 1.4% for the European Union in 2020, the Commission is no longer hiding the fact that the recession will return to the continent.
“We expect a negative impact of between 2% and 2.5%”, said EU Internal Market Commissioner Thierry Breton on BFM Business. New economic forecasts are expected in early May.
Despite the emergency economic measures already announced last weekend by many Member States, several central banks, including the European Central Bank (ECB) (see EUROPE 12445/1) and the European Commission, the financial markets continued to unwind on Monday 16 March, as the containment measures – already taken or expected – paralysed the global economy.
On Sunday, the ECB and the Federal Reserve, the Bank of England, the Bank of Canada and the Swiss National Bank launched a coordinated action to ensure the provision of liquidity via US dollar ‘swap lines’. The aim is ultimately to alleviate tensions in granting credit to businesses and individuals.
Heavily criticised for failing to make clear promises to act on sovereign securities markets in case a weakened country – such as Italy – is targeted, the ECB President has since corrected the situation and promised that the monetary institute will fight any “fragmentation” within the euro area.
In order to support banks’ ability to maintain the provision of credit to economic operators, the ECB as the single banking supervisor and the European Banking Authority have encouraged national supervisors to use the margins of flexibility already enshrined in European prudential rules. The annual bank stress testing exercise has been postponed to 2021. (Original version in French by Mathieu Bion with Marion Fontana)