Echoing former ECB President Mario Draghi’s famous statement in 2012 to calm financial markets, euro area finance ministers promised, on Monday 16 March at the end of their videoconference (see EUROPE 12447/4), to do “whatever it takes and more” to support the economic players paralysed by the coronavirus pandemic and help them to restart their activity as soon as possible once the crisis has passed.
“We will protect our citizens and our currency. Come what may and with everything we have got. Our commitment to provide support in this time is unlimited”, said Eurogroup President Mário Centeno after the ministerial meeting.
“Our job is to replace fear by confidence”, said Economics Commissioner Paolo Gentiloni. First, he added, we need to “save as many lives as possible”, and then we need to coordinate in unprecedented ways to prevent economic collapse. He listed the objectives to be achieved: - provide national health systems with all the assistance they need; - provide the necessary liquidity to the affected companies and protect jobs and workers’ incomes; - defend the internal market, which is “a difficult task”; - mobilise the EU budget; - apply state aid rules intelligently and European fiscal rules very flexibly.
Adding the emergency measures taken at the national and European levels to the normal functioning of economic stabilisers, the Eurogroup evaluates fiscal measures at about 1% of GDP and measures to ensure financial liquidity at around 10% of GDP. The latter mainly take the form of public guarantee schemes and tax deferrals.
Anticipating at this stage a recession of “1% of national GDP” in 2020, French Finance Minister Bruno Le Maire said on Tuesday that public guarantees would amount to €300 billion in his country and Italy, and €500 billion in Germany.
In France, emergency fiscal measures amount to €45 billion, including €32 billion in tax and social security carryovers over the next 2 months and the creation of a €2 billion solidarity fund for businesses over 1 month. Le Maire confirmed that he would not hesitate to use all available means to defend a French group experiencing market disruptions by increasing the company’s capital or even nationalising it.
The Eurogroup, which has decided to meet on a weekly basis from now on, also welcomed the economic support measures announced by the European Commission (see EUROPE 12445/1, 12448/4), the European Investment Bank (see other news) and the European Central Bank (see EUROPE 12446/1).
Use all of the Stability Pact’s flexibility. The ministers are promising to use all the flexibility allowed by the current Stability and Growth Pact.
In particular, we agree with the European Commission’s approach to activate the “unusual events clause”, Centeno said, reiterating that European fiscal rules will not stand in the way of the fight against the coronavirus pandemic.
This clause, which could be activated, for example, in the event of a terrorist attack, authorises the commitment of exceptional one-off expenditures that would be excluded from the calculation of structural fiscal effort.
But there is no question, at this stage, of using the ‘general escape clause’, which allows any threat to the euro area or to the EU as a whole to be addressed by suspending the fiscal adjustment agreed at the European level. However, Gentiloni noted that the Eurogroup had welcomed the Commission’s readiness to propose that the ministers activate this clause.
ESM invited to innovate. In addition, the Eurogroup asked the Commission and the European Stability Mechanism (ESM) to explore new methods of intervention to support the euro area countries in accordance with their mandate.
The Director of the ESM, Klaus Regling, pointed out that the permanent rescue fund for the euro area has a lending capacity of “410 billion euros, or almost 3.4% of the euro area’s GDP”. He recalled that some of the ESM’s facilities have never been put into practice, without however explicitly mentioning the possibility of a struggling euro area country applying for a line of credit.
“We will see how these facilities can be used and whether and how they can be useful in the current circumstances”, he added, clarifying that there is no question of extending the ESM’s remit. He stressed that the current situation is very different from the one faced 10 years ago during the sovereign debt crisis, in particular because “all euro area countries continue to have market access at historically low interest rates”.
“There is no moral hazard problem”, Centeno added. However, German Finance Minister Olaf Scholz said in the columns of Tuesday’s Handelsblatt that it is “premature” to consider ESM intervention to help a euro area country in difficulty.
See the Eurogroup statement: http://bit.ly/3d7inh4 (Original version in French by Mathieu Bion)