German Finance Minister Olaf Scholz talks to European Central Bank (ECB) President Christine Lagarde before the second session of the Informal Meeting of Ministers for Economics and Financial Affairs in Berlin, Germany, September 11, 2020. Kay Nietfeld / Pool via REUTERSPOOL / Reuters
The euro zone could have already left behind what is shaping up to be the shortest and most intense recession ever.
Brussels foresees, however, that most of the partners of the single currency will not return to pre-crisis levels until 2022. The European Commission and the European Central Bank called on the finance ministers on Friday to maintain fiscal stimulus .
"A premature withdrawal would endanger a fragile recovery", warned the Commissioner for the Economy, Paolo Gentiloni.
The head of the Eurogroup, Pascal Donohoe, said that there is "consensus" to continue propping up the recovery through fiscal measures.
After the bump in the second quarter of the year, when the euro zone economy sank 11.8%, activity picked up again in June and July.
The rebound, however, has been losing steam as countries have been forced to apply new restrictions to protect the health of their citizens against a new escalation of infections.
"Indicators suggest that activity slowed again in recent weeks, as countries have faced new outbreaks of the virus," Gentiloni warned after the informal Eurogroup meeting in Berlin.
European leaders for now are taking heart from the EU's response to the economic crisis.
The president of the European Council, Charles Michel, recalled last Tuesday at the
Brussels Economic Forum
that the stimulus packages launched by the EU bloc have been, on this occasion, as a whole, superior to those of the United States or China.
However, the President of the ECB, Christine Lagarde, again urged European leaders "not to become complacent" in the face of an "uneven, incomplete and asymmetric" recovery.
"The accommodative monetary policy needs fiscal policy," he reminded them.
Finance ministers appeared to have gotten the message in their first face-to-face meeting since February.
Donohoe, who debuted in the presidency of the meeting after his election last July, said that some plans against the crisis will begin to win, but added that others will come, perhaps even better.
“Member States are developing new policies to boost recovery.
There will be no sudden stop, no cliff-edge policies, and overall fiscal policy will continue to support the economy, ”added Donohoe.
The Irish minister said that there is "consensus" within the Eurogroup to continue supporting the recovery.
The question is until when.
Countries can now continue with their fiscal policies without fear of exceeding deficit and public debt limits after the general escape clause was activated, a
de facto
temporary suspension
of
the Stability and Growth Pact.
Despite the fact that some capitals before the summer asked for indications on when the fiscal rules will return to apply, in Brussels the opinion prevails that this should not happen until the economy recovers the size and vigor before the pandemic.
“We expect that most of the Member States will not reach their pre-crisis levels of GDP by the end of 2021, with an average gap of 2.5% [compared to the beginning of 2020]”, warned Gentiloni, who lamented the differences in the fall of the GDP between countries, ranging from 4.5% in Finland to 18.5% in Spain.
The commissioner conveyed to the ministers that in the medium term the finances of the euro zone should be in order again.
But all in due time.
"As I told the ministers, if we make a mistake when calculating the time of that landing, we run the risk of damaging the European economy," he added.
Beside him, Lagarde nodded and invited the Finance incumbents to wait for the "right time" to gradually withdraw those stimuli.
Flexibility
The commissioner considered, therefore, that for now the debate on the rules should be "avoided", but he reopened the door to leave a free bar to countries until 2022, when their economies could finally come out of the hole.
“The general escape clause kicks in in the event of a severe recession.
On the contrary, it must be deactivated when that depression ends ”, he pointed out.
Gentiloni also raised the possibility that the countries that lag behind, such as Spain or France, will later submit to the rules, noting that this reactivation did not have to occur at the same time in each and every one of the countries.
For now, the French Minister of Economy, Bruno Le Maire, has already refused to set a date to recover the budgetary rules.
"Nobody knows when the crisis will end and nobody knows when we will have access to a vaccine," he settled.
Cryptocurrencies
Germany, France, Italy, Spain and the Netherlands came together on Friday and issued a joint statement that no
crypto-asset-
based virtual currency
should
operate in the European Union until "legal, regulatory and supervisory challenges and risks have been adequately identified and addressed ”.
The document of the five countries came to light a few days after Brussels presented its proposal to regulate these types of assets.
The paper - presented by the five Economy Ministers, including the Spanish Vice President Nadia Calviño - defends that regulation should protect European "monetary sovereignty" and the interest of consumers.
For this, the capitals propose several points.
To begin with, they want each virtual currency to be backed by a real one;
that reserve assets are deposited with an entity that is recognized and authorized by the EU, and that consumers can exchange these coins into euros if they are intended for payment.
"Citizens have to be safe and feel protected by the monetary system that we have given ourselves," said Calviño.
"We want a simple principle: the ECB is the only entity that is allowed to issue a currency, and this point is something that cannot be damaged or weakened by any project, including Libra [Facebook's cryptocurrency]," declared Frenchman Bruno Le Maire.