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Deficit rules suspended due to EU
As of March 20, 2020 9:34 pm
It is a historic, unprecedented step: In order to counter the consequences of the corona crisis, the EU Commission wants to suspend the deficit rules for the member states. This means that they can borrow indefinitely.
Due to the Corona crisis, the EU Commission wants to suspend the European rules for budget deficits in the member states until further notice. For the first time, the authority has activated "the general evasion clause" in the EU Stability Pact, said Commission President Ursula von der Leyen in a video message on Twitter.
"The move means that national governments can pump as much liquidity into the economy as necessary." Europe's finance ministers still have to agree. They meet on Monday.
The corona crisis has "dramatic consequences for our economy," said von der Leyen. "Most industries will be affected sooner or later." The EU therefore wanted to "do everything necessary" to assist citizens and businesses. "To make this possible, we temporarily mitigate the otherwise very strict budget rules," von der Leyen continued. "This has never been done before."
Because of the Corona crisis, the Commission decided last week to use a clause in the Stability Pact for exceptional circumstances such as natural disasters. This allows flexibility when examining the deficits of the member states.
Given the size of the Corona crisis, this is not foreseeable enough. After all, the expected recession resulting from the crisis could, according to the EU Commission, be considerably more severe for the European Union than initially thought. The decline in economic output in 2020 could be comparable to the downturn in the year of the economic crisis in 2009, the EU Commission said. At that time, the economy in the EU had shrunk by 4.3 percent and in the euro zone by 4.5 percent.
The President of the European Parliament, David Sassoli, welcomed "the decision to suspend the Stability and Growth Pact". This gives Member States the opportunity to protect citizens from the Corona crisis, the Italian wrote on Twitter.
Due to the dramatic situation, von der Leyen did not rule out the joint issuance of bonds by the euro countries. "We look at all the instruments," she said on Deutschlandfunk. "And that which helps is used." This also applies to so-called corona bonds. "If they help, if they are structured correctly, they will be used."
Italy's head of government, Giuseppe Conte, had proposed such corona bonds to diplomats at Tuesday's video conference of heads of state and government. He warned that the crisis would be "fatal to us" without a "common response" from Europeans.
Italy has so far been the hardest hit European country by the pandemic and, after Greece, the most indebted EU country. Rome's total debt was over 130 percent of its economic output before the Corona crisis.
Germany has always refused to communitize European countries' debts via so-called Eurobonds. According to information from EU circles, the "corona bonds" could consist of common funds from the European Investment Bank, which are guaranteed by the Euro Rescue Fund ESM. The aim would be to prevent speculation against Italy because of the increasing debt burden.
