EU calls for more public spending as coronavirus clouds the economic picture – POLITICO

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Europe’s economy could recover and hum like it did in the 1920s, or suffer permanent scars from a mutating coronavirus.

In any case, EU governments should maintain their spending as long as these vastly different economic scenarios remain possible, said the European Commission in a guide to fiscal policy first published by POLITICO.

When the guidelines were presented on Wednesday, the Commission put forward six general policies that the treasuries should follow when planning their budgets for the next year.

The EU’s deficit rules are to be kept on hold until 2023. at least, according to the document. The commission suspended the limit – 3 percent of annual economic output – at the beginning of the outbreak to allow governments to tackle the health emergency and cushion the historically sharp recession it caused.

The EU finance ministers will discuss the fiscal guidelines in mid-March, then the Commission will propose more detailed measures, including national recommendations, at the end of May.

The economic path from here will depend on virus variations and the success of vaccine introduction – which is why so different paths remain open, the press release said.

“An outbreak of optimism after the crisis could trigger a greater backlog and investment projects,” it says. “On the flip side, the pandemic could prove to be more persistent or more severe in the near future” and “the risk of leaving deeper scars on the fabric of the European economy”.

That would lead to “bankruptcies, rising long-term unemployment and higher inequalities,” says the 16-page document.

Do not stop

To avoid worsening these problems, countries must not be too quick to withdraw public support once economic conditions improve.

The eurozone governments have together spent 4 percent of gross domestic product to prop up their economies since Brussels suspended the Stability and Growth Pact, which sets a deficit limit and an upper limit for national debt of 60 percent of GDP.

It worked. Retain support for employees on leave and loan guarantees 20 percent of EU employees in a job and, according to the document, protected every fourth company from deep financial stress in the past year.

But spending has to decline at some point before the national debt is no longer manageable. The euro zone’s mountain of debt is already there Contact distance of 100 percent of GDP.

The Commission plans to resume the debate on a possible revision of the Stability Pact shortly. Wednesday’s document does not address the review.

Lower taxes, help wages

The immediate challenge is to wean the economy off public support over the next year without exposing businesses and employers to the post-pandemic recovery.

According to the document, the coordination of EU fiscal policies, which should adapt to changing circumstances, will be vital to the bloc’s economic health. As soon as the pandemic crisis improves, governments should “gradually take more targeted action,” it said.

These measures should focus on helping viable businesses that are cash tied up from the outbreak. This aid could take the form of “temporary corporate tax cuts or wage subsidies”, as examples cited in the document.

The communication also urges governments to consider how the $ 672.5 billion

This grant will boost the bloc’s economic output by 2 percent in the coming years if all grants and half of the loans are used, the document says.

This story was updated following the announcement by the commission.

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