The European Union needs to consolidate the efforts of all member states to overcome the consequences of the coronavirus pandemic, as the European economies are highly interdependent and no one member state will be able to get out of the COVID-19 crisis on its own if others enter a durable stagnation
BRUSSELS (Pakistan Point News / Sputnik - 09th April, 2020) The European Union needs to consolidate the efforts of all member states to overcome the consequences of the coronavirus pandemic, as the European economies are highly interdependent and no one member state will be able to get out of the COVID-19 crisis on its own if others enter a durable stagnation.
While on the other side of the Atlantic the US Treasury approved new programs to provide up to $2.3 trillion toward financing businesses, local governments and households hit by the coronavirus pandemic, Europe has so far failed to agree on its own economic stimulus plan.
Following their unsuccessful talks on Tuesday, the euro area finance ministers informally the Eurogroup will reconvene on Thursday in a bid to bridge differences between northern and southern EU members. However, experts with the Jacques Delors Institute believe that they may not reach consensus, and the EU will require another meeting at a higher level next week.
ALL EUROPEAN ECONOMIES CONTRACTING
The contraction of Europe's top economies is worse than during the global financial crisis of 2008-2012, and is being compared by economists to the 1929 Wall Street crash and Great Depression. It has become the sharpest decline since record keeping began in 1970.
According to the German Institute for Economic Research, the German economy will inevitably plunge into recession this year and experience a 4.2 percent drop in output. For the first quarter of 2020, the contraction is expected to reach 1.9 percent, but the forecast for the second quarter shows that the shrinking will hover around10 percent.
The same dire prediction has been made by the Bank of France, which estimates that the country's economy has already shrunk by 6 percent in the first quarter.
Evidence of a severe recession in Europe's leading economies is bad news for the countries most affected by the pandemic, such as Italy and Spain, who wait for the EU's assistance in combating the disease and reviving their national economies.
EU'S PROPOSALS ON REVIVING ECONOMY
After the Eurogroup's 16-hour meeting late on Tuesday, the ministers failed to agree on how to finance the massive public spending and stimulus packages allocated by individual governments. The discussions only seemed to worsen the differences between northern and southern European states rather than break the deadlock. The northern countries regrouped around the "frugal four" Germany, Austria, the Netherlands and Finland which opposed the creation of eurobonds and the mutualization of the debt, something demanded by southern countries led by Italy, France and Spain.
Europe's response to the pandemic was expected to focus on three main points. In particular, the bloc proposed a minimum of 240 billion euros ($260 billion) in loans from the eurozone relief fund the European Stability Mechanism but the southern countries refused it. Another aspect concerned small- and medium-sized businesses suffering from the pandemic and envisaged a guaranteed fund of 200 billion euros. The bloc further suggested support for partial unemployment worth 100 billion euros, which was refused by populist groups, who feared this would lead to meddling in internal affairs of certain nations that could remain even after the crisis. Nevertheless, the requested sum of around 500 billion euros is unprecedented for the EU.
The divisions on the EU's response to the coronavirus emerged even prior to the Tuesday meeting and became obvious after the failed summit of the heads of state on March 26. In particular, Spain, Italy and Greece have called for jointly issued "coronabonds" eurobonds that would help their economies recover from the epidemic. But Germany, Austria, and the Netherlands strongly opposed the idea, saying it would only deepen the crisis.
Within the context, European Commission President Ursula von der Leyen, proposed last week another mechanism SURE (Short Time Employment Scheme) that would give up to 100 billion euros to EU member states, among other things. Formal support for SURE has yet to be announced, and the negotiations are still ongoing.
Given the existing differences, EU finance ministers are set to break the deadlock during another meeting later on Thursday. However, if they fail to reach a deal once again, the heads of state will have to find a unanimous political agreement.
The whole European HORECA sector hotels, restaurants and cafes is closed due to the coronavirus crisis, which has spelled disaster for those small and medium businesses that still have to pay their numerous employees. All construction has stopped apart from emergency work. Some governments are hesitating to maintain a full lockdown over fears that it would seriously affect national economies, even though such an extreme measure is essential to ending the pandemic as early as possible.
At the same time, the post-lockdown scenario is being debated among experts everywhere. The main issue is how the authorities will start returning to normalcy whether they will start with age groups, since youngsters suffer less from the disease, or test regional options first. There does not seem to be an evident way-out of the lockdown situation. All eyes are turned to Asia to see how China and its neighbors are recovering from the pandemic.
China, in particular, which is where the outbreak originated, is currently trying to return to normal life by resuming operations for all industrial enterprises and other businesses. Last week, the BRICS New Development Bank (NDB) issued bonds worth RMB 5 billion yuan ($705 million) in the China Interbank Bond Market to assist Beijing in overcoming the crisis. According to the NDB, given that the pandemic has heavily affected both the population and the economy of the country, the bank issued these bonds to finance a loan worth RMB 7 billion, the first emergency assistance given by the NDB to China in late March.
Meanwhile, the EU is still in the negotiations phase. Portuguese Finance Minister Mario Centeno, who chairs the Eurogroup's meeting on Thursday, as well as his French and German counterparts, Bruno Le Maire and Olaf Scholz, nave repeatedly said that the Eurogroup was "very close to a deal but not there yet." At the same time, the recovery plan they mentioned did not include the so-called coronabonds that Italy and Spain are asking for. So the package on the table is worth about half a trillion euros in total, comprising credit lines, guarantees and employment protection programs, but no grants such as eurobonds.
While waiting for the bloc's assistance, member states have already taken measures at the national level. The EU estimates that these national measures account for some 3 percent of the bloc's GDP. In addition, the European Central Bank announced in March that it would spend 750 billion euros to purchase bonds issued by national governments.