European Union finance ministers plan to agree on Monday on a coordinated economic response to the coronavirus pandemic, with the European Commission forecasting the effects of the virus could push the EU into a recession.
The action would be a coordinated stepping up of the EU’s response — so far composed of a variety of national measures by its 27 member governments and a suspension of any EU limits on national government spending, if related to the epidemic.
The so-called Eurogroup of ministers will discuss by video conference how to limit the effects of the spread of the COVID-19 virus, which has already caused lockdowns in Germany, Italy, Spain, Denmark, the Czech Republic and Poland and caused curbs on businesses and the movement of people in many countries.
“Our Monday Eurogroup will be dedicated to the Covid19 response,” the chairman of euro zone finance ministers, Mario Centeno of Portugal, said on Twitter. “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,” he said.
The economic challenge facing the 27-nation bloc and the 19 countries sharing the euro is similar to 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 in 1.5 per cent of the bloc’s GDP, or 200 billion euros, into the economy to prevent it. The euro zone economy shrank 4.4 per cent year-on-year anyway, but the extra spending might have limited the size of the recession.
With the coronavirus now putting whole sectors of the economy out of action, the European Commission said on Friday that the EU and the euro zone would very likely go into recession this year, even though it forecast only a month earlier euro zone growth at 1.2 percent in 2020 and 2021.
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 — so far lacking.
Individually, Germany has announced the most ambitious steps so far, promising on Friday half a trillion euros in guarantees for business – and more if needed – in a four-point plan that won praise from economists.
France also promised support to its firms and Italy will allocate 25 billion euros to firms and families.
“In the ideal world, of course, such fiscal measures should have been pan-European, or at least coordinated and announced across the euro zone,” said Erik Nielsen, chief economist at UniCredit Bank in London.
He added the German and French steps should ideally be taken up by others, especially Italy, because of how hard the Italian economy had been hit and how dependent it was on small and medium sized companies. Separately, the European Commission proposed last Friday a 37 billion euro investment initiative.