EU warned it needs to deliver on stimulus

EUROPEAN Central Bank president Christine Lagarde and German Chancellor Angela Merkel have warned European Union leaders that if they fail to agree on a stimulus package the consequences could be dire.

The leaders, meeting by video conference, have begun negotiations on a €750bn plan to help their economies rebound from the Covid-19 lockdown, with Germany and France pushing for a deal to be sealed next month.

The European Commission, the bloc’s executive arm, has proposed issuing joint debt to finance the programme, a radical step that would signal an unprecedented move towards integration among the 27 member nations.

Stumbling blocks to a deal include the total amount the EU could end up borrowing, the timing of repayments, where the money will come from and how resources will be allocated.

Speaking after the video conference with leaders, Merkel insisted the bloc needs to forge a consensus when they meet next month.

“Germany is for a swift agreement,” she said. “It’s no exaggeration to say we’re before the biggest economic challenge in the history of the European Union.”

Charles Michel, president of the EU leaders’ council, said he will call a proper summit for the middle of July, when the group will meet in person for the first time since the pandemic blew up, according to officials. The exact date may be nailed down next week.

Several leaders, including Merkel, have said that a physical meeting will be necessary to broker a deal because it allows for bilateral talks, side deals and more control over leaks.

Lagarde said she expects a quarter-on-quarter decline of 13pc in the second quarter for the euro area and a contraction of 8.7pc in 2020. The worst impact on labour markets is still to come and unemployment could end up at 10pc, a person familiar with her remarks at the summit said. This would hit Europe’s young people particularly hard, according to Lagarde.