European Central Bank chief Christine Lagarde warned EU leaders on Thursday that their efforts to kick-start the bloc’s economy in the wake of the coronavirus crisis could be “too little, too late,” as they grappled to overcome deep divisions.
Lagarde laid out the scale of the problem during a videoconference on the European Union’s fiscal response to the crisis, according to EU sources, telling the leaders that the eurozone’s economic output could shrink by up to 15 per cent.
This is the worst of three possible scenarios calculated by the ECB.
At the centre of discussions is a coronavirus recovery fund potentially worth trillions of euros. Ahead of the talks however, EU officials dimmed hope of an immediate breakthrough.
The distance between EU capitals remains too great – particularly on the issue of shared EU debt to raise money for the recovery – according to the sources.
Lagarde urged the leaders to agree on a “fast, firm and flexible” response.
There have been more than 1.1 million confirmed cases of Covid-19 so far in Europe, and more than 110,000 deaths.
A decade after the European debt crisis, the pandemic is reawakening old conflicts and testing the EU’s ability to forge a coordinated response.
The divisions between fiscally conservative northern member states and hard-hit southerners, notably Italy and Spain, have focused on recovery spending and joint bonds in particular – whether to issue them and how to dole out the proceeds.
Italy called ardently for so-called coronabonds, receiving initial backing from eight other member states including France and Spain. However, Germany and the Netherlands are fiercely opposed to jointly-issued EU debt.
In the run-up to the summit, positions softened on both sides, with Paris and Madrid putting forward less controversial proposals.
But agreement on anything more than broad strokes remains unlikely. European Council President Charles Michel is set to pass the buck to the European Commission to develop a proposal for a recovery fund.
Ahead of the summit, German Chancellor Angela Merkel said Berlin is willing to contribute more to the next EU long-term budget.
“Europe is not Europe if we don’t stand up for each other in times of undeserved crisis,” she told parliament in Berlin.
Most view the EU’s next seven-year budget framework, starting 2021, as central to the recovery effort, although EU capitals are deeply divided on how this should work and how much firepower it should have.
Meanwhile, Italian Economy Minister Roberto Gualtieri told Thursday’s Financial Times that his government was no longer “attached” to terms like coronabonds.
Instead, he said Rome now backs Madrid’s proposal, which foresees a fund in the long-term EU budget managed by the commission, which would issue bonds guaranteed by the member states.
While the plan has drawn praise from the EU executive, it is unlikely to be approved by Berlin or The Hague.
The stakes for Italy are particularly high. It has suffered Europe’s heaviest death toll from Covid-19, with more than 25,000 fatalities.
The country has experienced a sharp rise in anti-EU and anti-German sentiment, amid widespread perceptions of insufficient solidarity from European partners.
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The SWG polling institute says that 45 per cent of Italians consider Germany an “enemy,” while trust in the EU has slipped to 27 per cent, from 42 per cent in September.
Nevertheless, as a country with strained public finances and one of the world’s highest public debt levels even before the coronavirus crisis, Italy is economically vulnerable.
But Rome is not alone in fearing that the worst anticipated recession in almost a century could add to the woes of heavily indebted states with stubbornly high unemployment.
Europe’s economies are highly entwined, and a poor recovery in the South would also hit richer, export-heavy states like Germany and the Netherlands.
In one glimmer of hope, EU leaders are expected on Thursday to approve a 540-billion-euro (584 billion dollars) aid package to support employees, companies and overburdened states, with a view to implementing the measures by June.
(dpa/NAN)
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