The Eurogroup has issued a statement (15 March) on the eurozone’s continuing fiscal response to the COVID-19 crisis, committing to what Eurogroup President Paschal Donohoe described as timely, temporary and targeted measures that would be key to longer-term fiscal sustainability.
European Commissioner Paolo Gentiloni underlined his agreement with the Eurogroup statement, saying: “We will not repeat the same mistakes of the last crisis.” Pointing to the growing consensus in Europe and internationally, he said pulling back too quickly would be a policy mistake, and argued that the best way to secure public debt sustainability is to support the recovery and thereby reduce the risk of scaring and economic divergence.
According to the Eurogroup statement, the vigorous policy response of countries and the EU is paying off. Far-reaching fiscal support at 8% of GDP allowed through the activation of the ‘general escape clause’ and the temporary framework for state aid has been far in excess of the response to the financial crisis.
The group also welcomed the European Commission’s Communication of 3 March 2021 ‘One year since the outbreak of COVID-19: fiscal policy response’, providing policy orientations for the coordination of our supportive fiscal stance.
There is agreement that until the health crisis is over and recovery is firmly under way, European governments will continue to protect the economy through the deployment of the ‘necessary’ level of fiscal support to promote economic activity and mitigate scarring effects with the aim of protecting longer-term fiscal sustainability.
The statement explicitly states that the premature withdrawal of fiscal support should be avoided for as long as the acute health emergency prevails. Once the health situation improves and restrictions ease, fiscal measures should gradually shift towards more targeted actions to promote a resilient and sustainable recovery.
Viable, but still vulnerable firms will continue to be helped to avoid solvency problems, reopen and adjust their business models. However, governments should become increasingly involved in facilitating job transitions and the creation of job opportunities for unemployed and inactive persons. The responses will vary according to each state’s particular circumstances.
Finally, once recovery is ‘firmly’ under way, states will address the increased public debt levels by implementing sustainable medium-term fiscal strategies, with an emphasis on improving the quality of public finances, raising investment levels and supporting the green and digital transitions.