All finance news

Europe has a rescue package. But who’s going to pay for its coronavirus recovery?

0 2

London (CNN Business)EU finance ministers have approved €500 billion in stimulus measures designed to cushion the blow to their economies from the coronavirus pandemic, while leaving open the difficult question of how to pay for the region’s recovery.

The deal was announced Thursday after weeks of back and forth over how to address the crisis, a bruising process that exposed deep divisions and led Italian Prime Minister Giuseppe Conte to warn that a failure to act would mean “the end of Europe.”Yet little progress was made on how to finance the response. Nine of the countries that use the euro, including Italy and France, had called for the European Union to issue debt, dubbed corona bonds, to raise long-term finance for all member states to help repair the damage wrought by the pandemic.Read MoreGerman Chancellor Angela Merkel, backed by the leaders of Austria and the Netherlands, have said no. They have long opposed the issuance of debt at the EU level for fear that it would effectively mean their taxpayers are underwriting spending by poorer member states.Mujtaba Rahman, managing director for Europe at the Eurasia Group, wrote in a research note on Friday that the agreement reached by the finance ministers punts on this key issue, leaving it to be addressed in future negotiations when leaders “are confronted with a devastated economy and the need to rebuild.”Analysts at Berenberg Bank said that how the European Union responds to the crisis will have major implication for the future of the bloc. The stakes, they argued, are even higher than during the eurozone debt crisis in 2011 and 2012. “A perceived lack of solidarity in the worst peacetime crisis in living memory could be dynamite for the longer-term cohesion of the eurozone and the European Union,” they wrote after the deal was announced. Europe has already taken some other measures to protect workers and business. EU limits on budget deficits have been relaxed to allow member countries to borrow more, and the European Central Bank has also pumped hundreds of billions into markets to prevent the shock from triggering a new financial crisis.Yet economists still expect Europe to fall into a steep recession. Germany’s top economic research institutes said earlier this week that Europe’s biggest economy is likely to shrink by 4.2% this year. It expects a contraction of 9.8% in the current quarter, compared to the previous three months, which would be the sharpest decline since record-keeping began in 1970 and more than twice as steep as the most damaging quarter during the global financial crisis.France’s central bank has estimated the country’s first quarter GDP shrunk 6% from the previous three months. The central bank said the last contraction of a similar magnitude came in the second quarter of 1968, when weeks of civil unrest, demonstrations and general strikes sharply curtailed economic output. Evidence of a severe recession in Germany and France is bad news for other European countries such as Italy and Spain. They have been hit harder by the pandemic, and their economies are taking an even bigger hit.

    The Berenberg analysts said the deal announced Thursday is a “major step forward.” But they said EU leaders must now move quickly to approve a “substantial and impressive” joint recovery fund. “In a good case scenario, the memory of how this compromise was forged will fade and citizens across the European Union will remember that countries did help each other substantially in the end,” they wrote. “In a bad case scenario, the perception of slow — or insufficient — solidarity could … undermine the political foundations of the European project.”

    Source: edition.cnn.com

    Leave A Reply

    Your email address will not be published.

    1 × 3 =