Euro zone finance ministers have pledged continued fiscal support for their economies and discussed the design of post-pandemic recovery plans as the European Commission warned the COVID crisis was making the bloc’s economic imbalances worse.
“Our discussion today reconfirmed the very strong consensus on the need to maintain a supportive budgetary stance,” the chairman of the ministers Paschal Donohoe told a news conference after Monday afternoon’s meeting.
“Ministers also emphasised the importance of coordinating our efforts at euro area level and the core fact that we can achieve more collectively than individually.”
The Commission said in a note prepared for the ministers that the pandemic was pushing already highly indebted countries deeper into debt and increasing problems in areas like competitiveness or employment.
Such divergences between economies sharing the same currency increases the risk of crises and makes the single monetary policy of the European Central Bank less effective.
To prevent that, the EU has agreed on a 750 billion euro recovery fund, to be jointly borrowed and repaid, that will fund reforms and investment in each of the 27 EU countries to boost their growth potential while avoiding a debt build up.
“We will need to pay great attention to imbalances stemming from the social impact of the crisis, which have not yet been fully felt. We must avoid a further deepening of the already worrying inequalities within our societies and between our countries,” European Commissioner for Economic and Financial Affairs Paolo Gentiloni told the news conference.
Before they can get money from the recovery fund, EU governments must prepare plans for how to spend it under the guidance of the Commission. The plans have to meet EU requirements of making economies greener, more digitalised, improving their resilience to crises and boosting their potential growth.
They also need to take into account individual country recommendations issued by the Commission last year.
The Commission said Germany and the Netherlands should boost investment and household income to reduce their huge current account surpluses. Italy, Greece, Spain, France and Portugal, however, had to tackle high public and private debts, competitiveness and productivity issues, it said.
Gentiloni said governments would probably be able to formally submit their plans, now being discussed informally with the Commission, towards the end of February. The EU executive arm will then have two months to approve them and EU finance ministers can take another month to give their OK.
The Commission would then borrow the money in the bond market in the name of the EU and pass it on to governments whose plans have been approved, paying out some 10% of the money up front and the rest in tranches as the investments progress.
Asked about a recovery plan for Italy, whose government is in turmoil, Gentiloni said drafts seen by the Commission so far were broadly in line with the EU’s goals, but needed more work.
“The Italian plan is broadly convergent with our general targets and policies but, as many other draft proposals, needs to be discussed and strengthened,” he said.
“We have a very good basis, but we should strengthen it, not only for the Italian plan, but also for all the draft plans we are discussing now with member states.” (Reuters)