BRUSSELS (Reuters) – Euro zone finance ministers promised on Monday to extend public support for the economy through 2021 and 2022 to help the common currency area emerge from the coronavirus crisis, saying they would deal with rising debt only once recovery is on track.
The ministers, known as the Eurogroup, also said the public support, so far worth 8% of euro zone gross domestic product in national fiscal measures and 19% of GDP in liquidity measures, or more than 3 trillion euros ($3.58 trillion) in total, would be maintained as long as there is an acute health crisis.
“The Eurogroup is committed to a supportive stance in the euro area in 2021 and in 2022, also taking into account the fiscal stimulus stemming from the RRF (Recovery and Resilience Facility),” the ministers said in a statement, as had been reported by Reuters on Friday.
The RRF totals 672.5 billion euros in loans and grants, to be borrowed jointly by the EU, on top of the national fiscal and liquidity measures so that EU countries hard hit by the pandemic and with already high debt can finance reforms and investments to make economies greener and more digitalised.
Earlier in March, in a similar message of support, the European Commission, which is responsible for upholding EU limits on government borrowing, said such curbs should stay suspended next year.
The statements are meant to reassure markets and businesses that the euro zone will not start withdrawing support before a recovery takes firm hold and that it will safeguard investment – the first victim of the global financial crisis a decade ago.
The ministers’ message dovetails with the European Central Bank’s statement last Thursday that it would step up bond purchases on the secondary market to keep yields from rising and preserve favourable financing conditions for the economy.
The euro zone economy contracted 6.6% last year, its biggest recession so far, as a result of the lockdowns put in place to slow the spread of the COVID-19 pandemic since early 2020. Public support has kept many companies afloat, including those that would have gone bankrupt anyway, even without the pandemic.
“In a second stage, once the health situation improves and restrictions ease, fiscal measures should gradually shift towards more targeted actions to promote a resilient and sustainable recovery,” the ministers’ statement said.
“Viable but still vulnerable firms should be helped to avoid solvency problems, reopen and adjust their business models.”
The Commission expects growth of 3.8% this year and next, but public debt will rise above 100% of GDP on average in the 19 countries sharing the euro. Greece is already at 200% of GDP and Italy at 160%. But the ministers said they would deal with the debt when the time is right.
“Once the recovery is firmly under way, euro area member states should address the increased public debt levels by implementing sustainable medium-term fiscal strategies.”
($1 = 0.8389 euros)
(Reporting by Jan Strupczewski; Editing by Mark Heinrich)