European Union finance ministers plan to agree on Monday on a coordinated economic response to the coronavirus pandemic, which the European Commission says could push the EU into recession.
The action would be in addition to national measures and step up the EU's response, so far composed of a variety of moves by the 27 member states and a suspension of any EU limits on national government spending if related to the epidemic.
"The bulk of the initial policy action lies in the capitals, but I will lead our group to agree on comprehensive and coordinated EU economic policy response to this health crisis," said Mario Centeno, the chairman of euro zone finance ministers.
The ministers will discuss by videoconference how to deploy new ways of tackling the effects of the epidemic, which has led to lockdowns in Germany, Italy, Spain, Denmark, the Czech Republic and Poland, and caused curbs on businesses and the movement of people in many countries.
"We need governments to step in right now, we need coordinated action in Europe to provide state guarantees, to provide liquidity for companies facing insolvency," said Carsten Brzeski, economist at ING bank.
Euro zone officials said the ministers would discuss the possibility of involving the European Investment Bank's balance sheet to keep the economy working.
They will also discuss whether the euro zone bailout fund ESM, which now has 410 billion euros of lending capacity, could also be involved although it was designed as a lender of last resort to governments cut off from markets.
"The ministers are preparing a statement that focuses on solidarity, cooperation and determination," one euro zone official said. "The aim is to use all the EU instruments that can give support to the healthcare sector and the economy next to the measures already taken at national level."
The official said that in principle a figure would be put on the response, which a second official said was intended to be "very large."
The U.S. Federal Reserve cut interest rates to near zero on Sunday and central banks globally have take similar steps.
The European Central Bank, which took its own steps last week, has called on euro zone governments to mount an ambitious and coordinated fiscal response.
Some economists believe the economic challenge facing the 27-nation EU and the 19 countries sharing the euro could be bigger than the sub-prime mortgage crisis in the United States that hit Europe in 2008.
At that time, expecting a recession in 2009, EU leaders agreed to pump 1.5% of the bloc's GDP, or 200 billion euros, into the economy. The euro zone economy shrank 4.4% year-on-year anyway, but the extra spending might have limited the size of the recession.
With the coronavirus set to put whole sectors of the economy out of action, the EU's executive European Commission said on Friday that the EU and the euro zone were likely to go into recession this year. A month earlier, it forecast euro zone growth at 1.2% in 2020 and 2021.
Officials said the EU economy needed targeted steps to keep healthy firms in the travel, transport or tourism sectors from going bankrupt. The ministers will also look at ways to prevent mass layoffs and keep people working, possibly part-time, with governments subsidizing their salaries.
Individual states' moves so far have included Germany promising half a trillion euros in guarantees for its business - and more if needed. France has promised support for French companies and Italy will allocate 25 billion euros to Italian firms and families.
Separately, the European Commission proposed last Friday a 37-billion euro investment initiative. (Reuters)
Source: www.businessworld.ie
