EU says virus fund access to be linked to its budget advice

‘Frugal’ EU nations push back vs French-German recovery plan

BRUSSELS, May 23, (AP): The European Union signaled that it will not punish member countries for breaking the bloc’s deficit rules to tackle the coronavirus but that it could condition their access to sorely-needed recovery funds on them following its advice on how to manage their budgets.

The 27-nation bloc is forecast to enter “a recession of historic proportions this year” as the coronavirus ravages its economies, with an average drop in output of 7.5%. Virtually every country has broken the deficit limit of 3% of GDP as they’ve spent to keep health care systems, businesses and jobs alive.

“In all cases, apart (from) Bulgaria, we concluded that the deficit criteria of the treaty is not complied with. In normal times, this would lead to the opening of an excessive deficit procedure. But these are exceptional times,” European Commission Executive VicePresident Valdis Dombrovskis said.

Dombrovskis’ remarks came as he unveiled advice from the EU’s executive arm, the European Commission, on how countries could weather the economic storm while continuing to promote growth and invest in policies that fight climate change and ease the transition to computer-based economies.

While the euro single currency rule book may be allowed to gather dust for now, Dombrovskis warned that it “is not suspended” and that countries will have to return to some budgetary rectitude in the medium term.

The commission’s “country specific recommendations ” released Wednesday are part of a system under which the executive arm monitors national budgetary plans and gives policy advice. Countries give the advice lip-service but are routinely slow to respond to it.

This time, however, Dombrovskis said that the recommendations will be “linked” to a massive recovery fund the commission is due to unveil on May 27, and which is expected to be part of the EU’s new long-term budget, totaling well over a trillion euros. He did not provide details about how the recommendations would be linked to the recovery funds.

The pandemic has hurt consumer spending, industrial output, investment, trade, capital flows and supply chains. It has also hit jobs. The unemployment rate across the 27-nation EU is forecast to rise from 6.7% in 2019 to 9% in 2020 but then fall to around 8% in 2021.

While the virus has hit every member country, the extent of the damage it ultimately inflicts will depend on the evolution of the disease in each of them, the resilience of their economies and what policies they put in place to respond.

Hard-hit countries like Italy and Spain will probably be banking on the recovery fund to survive.

Meanwhile, living up to their reputations for budgetary frugality - the Netherlands, Austria, Denmark and Sweden are working on a proposal for a European recovery fund that will have tough conditions attached for countries that seek financial help.

And it could derail or water down a French-German plan presented Monday that was seen as a groundbreaking way to deal with the economic fallout of the coronavirus crisis.

Dutch Prime Minister Mark Rutte mentioned - but pointedly did not endorse - the French-German proposal for a 500 billion euros ($550 billion) fund that would see countries borrow together and make outright grants to help countries through the recession. That plan, laid out by leaders Emmanuel Macron and Angela Merkel, goes beyond an earlier rescue package based on loans that would have to be paid back someday.

By endorsing common borrowing and direct cash help, the FrenchGerman blueprint is viewed by some as a step toward stronger EU financial links, as the 27-country union faces challenges not just from the virus crisis, but from populist forces in member countries Hungary and Poland.

Asked about it, Rutte called the Merkel-Macron suggestion, “a proposal. We’re also working on a proposal. We’re working closely with Denmark, Austria and Sweden. There will be a lot of proposals.”