Eurozone finance ministers have asked the bloc’s bailout fund to consider ways of tackling the crisis provoked by the coronavirus as officials predict that the money devoted by governments to battling the economic slide could swell far beyond commitments made to date.
Mário Centeno, the president of the eurogroup, said after a video conference call of ministers that there was “little doubt the virus is unleashing a severe economic downturn” and that governments would fight with “everything we have got” to protect citizens and the single currency.
As part of that response, EU officials are examining the tools at the disposal of the European Stability Mechanism, a firefighting fund with €410bn of capacity that was set up as a result of the last euro crisis, officials said, while not offering any specifics of how its role would develop.
The meeting marks the first concerted step by the eurogroup to slow the slump in the region’s economies, which are being crippled by coronavirus-related restrictions. Ministers said they had already agreed crisis-fighting fiscal measures worth 1 per cent of gross domestic product, on average, for 2020 to support the economy, plus liquidity facilities of at least 10 per cent of GDP, consisting of public guarantee schemes and deferred tax payments.
“These figures could be much larger going forward,” they said in a statement following the video conference call. Among the steps agreed in the meeting were an endorsement of European Commission proposals to offer individual countries maximum flexibility within the region’s budget rules. Ministers did not immediately trigger a region-wide escape clause from the fiscal framework, however.
Other measures endorsed by ministers were a pledge by the commission and the European Investment Bank to mobilise up to €8bn of working capital lending for 100,000 European firms, with efforts to boost the amount up to €20bn.
A critical question going into the meeting was how the ESM will be deployed, a topic that was not settled during the near-six-hour video conference call. Klaus Regling, the chief executive of the ESM, said it had a number of tools that had not been used in the past as he stressed the current crisis was different from the last one, given individual member states were all still able to tap financial markets for funding.
The ESM had been asked to look at how it can contribute to the crisis response and “that is what we will do”, said Mr Regling.
Olaf Scholz, Germany’s finance minister, said any debate on whether the ESM’s role needed to be expanded was still “premature”. He told Handelsblatt that the existence of the bailout fund would be enough to calm investors on Europe’s willingness to act “because it can be used at any time and is extremely powerful”. One eurozone diplomat said the ESM’s role was complicated as any big steps to use the tool could require national ratification in some member state parliaments.
“We are not taking any possible solutions off the table”, said Mr Centeno. “Rest assured that we will defend the euro with everything we have got.”
Finance ministers will continue to hold weekly teleconference meetings to discuss how to ramp up their responses to the crisis. But the absence of any big new financial commitments by the eurogroup will frustrate economists who have called on eurozone policymakers to unleash major financial firepower on a scale that cannot be provided for by existing EU budget tools.
In particular, some economists have questioned why the EU has not already triggered the emergency suspension clause in its budget rules.
Lucas Guttenberg at the Jacques Delors Centre in Berlin said the eurogroup “failed to send a clear message that it has the political will and the tools in place to keep the eurozone together in the coming months”.
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