Eurogroup advises to keep the aid “as long as necessary” and it will decide in spring if EU budget rules remain for 2022. European Union rules that set limits on government borrowing will remain suspended in 2021. The 27-nation bloc focus on recovery from the recession caused by the COVID-19 pandemic.
We will need to make wise choices in terms of fiscal policy!
The finance ministers of the euro zone agreed yesterday that the measures to support the economy will remain “as long as necessary”. The Eurogroup exchanged views on macroeconomic developments and policy prospects in the euro area. The European Commission has suspended EU requirements to keep government deficits below 3% of GDP. Reduction of public debt runs out of targets as EU economy entered a record recession.
The European Commission and governments will also have to decide in coming months if they want the EU borrowing limits, suspended until the end of 2021, restored in 2022, or to keep the suspension, called the general escape clause, one more year. “In early March the Commission will provide guidance on how it intends to approach this year’s Spring economic policy package,” Commissioner Paolo Gentiloni said. “This will include preliminary fiscal guidance for the period ahead and the parameters that we will look at to decide on the General Escape Clause,” he said.
COVID-19 has affected every part of the economy of the eurozone. It has been a particular challenge for young women and men, but also those who are employed in contact-intensive parts of our economies.
Eurozone support should stay as long as needed
This reaffirms the need to continue protecting our citizens from this pandemic and for supportive economic policies to remain in place for as long as they are needed. There is an inherent risk of withdrawing support too early, as opposed to withdrawing it too late.
The discussion was based on the European Commission’s Winter 2021 Forecast and the latest information on health developments presented by Michael Ryan, World Health Organisation (WHO) Executive Director for Health Emergencies Programme and Bruce Aylward, Senior Advisor responsible for the WHO-China Joint Mission on COVID-19.
When we start to emerge from the health crisis, our policy response will need to adapt but gradually – that is something we will be talking about regularly in the coming months because we all have an interest in a successful and united return to growth.
The meeting of the ministers of Economy of the euro zone has counted for the first time with the participation of two experts from the World Health Organization in search of references on the ground when making economic forecasts. Paolo Gentiloni told that it is necessary “to win the race between infections and injections, because everything is an economic question and the success of vaccination it is critical to recovery.” Commissioner Gentiloni hopes that the € 750 billion European reconstruction fund will also contribute to propping up the Eurozone Economy, with an additional 2% growth for the whole of the EU.
EU provide guidance to EU Member States, as Ministers are preparing their national Recovery and Resilience Plans. The General Escape Clause will remain active in the year 2021 and fiscal policies should continue to support the recovery. Recovery and Resilience Facility has just started focusing on achieving a durable recovery. Governments should carefully choose the fiscal measures they want to use to sustain the recovery because they would have to be well-targeted and temporary.
In light of the uncertainty and challenge, there continues to be a great need to coordinate our monetary and our budgetary efforts. From a Eurogroup perspective, it is important that we approach national budgetary preparations in a coordinated manner to help shape our policy decisions, particularly as the process of vaccination gathers steam and our recovery begins to slowly start.
The European Commission with Member States will have to decide in coming months if they want the EU borrowing limits and EU budget rules, suspended until the end of 2021, restored in 2022, or to keep the suspension, called the General Escape Clause, one more year.