For EU Economy Commissioner Paolo Gentiloni, the approach to policymaking in the era of the coronavirus is distinctly Hippocratic: First, do no harm.
“We do not want to repeat the mistakes we made 10 years ago, with the premature withdrawal of supportive policies,” Gentiloni says in an interview with Kathimerini and a small number of other European newspapers. “We are still fighting the risk of a double-dip recession. The issue of consolidation has not disappeared from the horizon, but it should be dealt with in the medium term. Our primary message to member-states is to take care not to end supportive policies too soon – at least not until the current level of uncertainty has passed.”
Gentiloni, a former Italian prime minister, calls the funds that will be made available through the Recovery and Resilience Facility (the main tool of the 750-billion-euro recovery fund) a “very strong opportunity” for member-states to implement far-reaching reforms and investments. “It is the governments that will decide what reforms to do – and what to undo. What we must decide is whether these reforms are coherent with our strategic goals and our recommendations.” He repeats, though, “These are not macroeconomic adjustment programs in disguise.”
The commissioner considers it crucial that member-states make full use of the firepower agreed upon by the European Council this past July: “I encourage all countries that have access also to loans [through the RRF] to use them. It is a tool that is to their advantage. But it is also part of the message that the European institutions and the European Union sent to the markets. We agreed on a very large package, a mix of grants and loans – our common European bazooka. I wouldn’t like to have only half a bazooka. It would not send a good message. The value of loans to member-states can be seen clearly with the SURE program [loans by the EU Commission to member-states to fund job-protection schemes]: Why have 18 member-states made use of this program? Because the 10-year loans have a negative interest rate. The interest rate for the 20-year loans is 0.1%.”
Since last March, fiscal rules have been suspended in the EU to allow governments to spend what is necessary to keep their economies afloat. The “general escape clause,” which is tantamount to this suspension, will be active throughout 2021 as well. But what criteria should the EU take into account to decide when to return to the normal fiscal regime?
“At some point next year, the governments of the member-states will require clarity about 2022,” Gentiloni notes. “So far, they have gotten clear answers for 2021. That does not mean that the general escape clause will be deactivated on 01/01/2022. What we need regarding 2022 is a serious assessment, next spring or summer – certainly before the national budgets start getting drafted.”
In recent weeks, he elaborates, “we have heard good news about the vaccine. This could mean that our recent economic forecast [for 2021] was too pessimistic. At the same time, we see that the second wave is here, it is hitting more or less all member-states and it is even more severe in the United States. The V-shaped recovery does not exist. According to our forecast, the economy of the euro area as a whole will still be smaller at the end of 2022 than it was at the end of 2019. Will these forecasts change in the coming four or eight months? We will see.”
He notes that the general escape clause is activated when there is a “severe economic downturn” affecting the European economy. “There it will be deactivated when the ‘severe economic downturn’ is over. ‘Over’ doesn’t mean that every EU country is flourishing or that they have all reached pre-pandemic GDP levels. It is an overall assessment.”