The European Commission has today (3 March) announced that it intends to extend its relaxation of the fiscal rules under the Growth and Stability Pact. The EU will extend the “general escape clause” until 2023.
The relaxation of the rules will remain in place after 2023 if the level of economic activity in the EU or euro area has not returned to pre-crisis levels (end-2019), this will be the key quantitative criterion for the Commission in making its overall assessment of the deactivation or continued application of the general escape clause.
Today’s guidance also provides general indications on the overall fiscal policy for the period ahead, including the implications of the Recovery and Resilience Facility (RRF) for fiscal policy.
Executive Vice President Valdis Dombrovskis said: “There is hope on the horizon for the EU economy, but for now the pandemic continues to hurt people's livelihoods and the wider economy. To cushion this impact and to promote a resilient and sustainable recovery, our clear message is that fiscal support should continue as long as needed.”
“Our decision last March to activate the general escape clause was a recognition of the gravity of the unfolding crisis,” said Economy Commissioner Paolo Gentiloni. “It was also a statement of our determination to take all necessary steps to tackle the pandemic and support jobs and companies. One year on, the battle against COVID-19 is not yet won and we must ensure that we do not repeat the mistakes of a decade ago by pulling back support too soon.”
Gentiloni added that the EU’s approach was also that of the G20 finance ministers who met last Friday.
The word of the moment appears to be ‘agile’, meaning that economies should be able to respond to the evolving crisis which still holds many uncertainties. The hope is that fiscal measures can gradually move towards supporting more forward-looking measures that promote a sustainable recovery. The guidance will be further detailed in the Commission's European Semester spring package.
Making the best use of the Recovery and Resilience Facility
It is hoped that the Recovery and Resilience Facility (RRF) will play a crucial role in helping Europe recover from the economic and social impact of the pandemic and will help to make the EU's economies and societies more resilient and secure the green and digital transitions.
The RRF will make €312.5 billion available in grants and up to €360bn available in loans to support the implementation of reforms and investments. As well as providing a sizeable fiscal impulse, it is hoped that it will help mitigate the risk of divergences in the eurozone and the EU. Importantly for the facility, expenditure financed by grants from the RRF will provide a substantial boost to the economy in the coming years, without increasing national deficits and debt.
Agriculture: Short-term outlook report favourable for EU agricultural sectors
The Commission has published the latest short-term outlook report for EU agricultural markets. This regular publication presents a general and sector-by-sector overview of the latest tendencies and further prospects for agri-food markets. The first 2021 edition concludes that the EU agricultural sector has shown resilience throughout the COVID-19 crisis. The sector performed relatively well thanks to increased retail sales and home consumption.
In addition, prospects are favourable with a dynamic global demand and the reopening of food services (restaurants, bars, cafés) expected once the vaccination campaign is sufficiently advanced. Recent trade developments will reduce uncertainties around the EU's trade relations, benefitting agricultural sectors. Among those developments, the US and the EU have agreed to temporarily suspend tariffs related to the civil aircraft disputes early March 2021. In addition, the EU-UK Trade and Cooperation Agreement was concluded late 2020. Still, both sides will need time to adapt and provide necessary conditions for optimal trade exchanges. For full details concerning specific markets, see the news item and the report available online.
European Year of Rail: Hop on the Connecting Europe Express
The Connecting Europe Express, one of the European Year of Rail 2021's most emblematic initiatives, is being presented today during the official European Year of Rail kick-off conference, organised in cooperation with the Portuguese Presidency of the Council of the EU. The event takes place on the eve of an informal meeting of EU Transport Ministers focusing on different ways to accelerate a modal shift to rail. As of September, the Connecting Europe Express will travel across the EU and stop in most European capitals to promote the many benefits of rail - for passengers, freight and the environment. The project will also raise awareness of the importance of financing sustainable infrastructure such as rail, and EU support for such investment, including through the recently agreed new Connecting Europe Facility (CEF), worth €33.7 billion, as part of the next long-term EU budget 2021-2027. The train's journey is possible thanks to good cooperation between European rail operators and infrastructure managers. Transport Commissioner Adina Vălean said: “The Connecting Europe Express will be a real, tangible example of the power of rail to connect. At each of the almost 40 stops, events will bring together the rail sector at large, as well as civil society organisations, local and regional authorities, and the wider public, to discuss the benefits of rail, as well as what still has to be done so that rail can become the number one option for passengers and business.”
ECB must remain eurozone's stabilizer: chief economist Lane
The European Central Bank must remain a key stabilizer of the euro zone economy as the bloc is at risk of suffering longer-term damage from its pandemic-induced double-dip recession, ECB chief economist Philip Lane (pictured) said on Saturday (27 March), writes Balazs Koranyi.
A sustained period of low activity reduces labour productivity, weakens corporate balance sheets and saps confidence, leading to a potential downward spiral, Lane said in a speech to the Spring workshop of The European House - Ambrosetti.
“There is a clear risk of self-fulfilling adverse dynamics taking hold, through which uncertain economic prospects induce households, firms and governments to hold back on expenditure plans, leading to a decline in overall demand that validates the loss in confidence about the future,” he said.
Hoping to prop up the economy until it is ready to reopen, the ECB has pushed borrowing costs to record lows through copious asset purchases and loans to banks at rates as low as minus 1%.
“To counter these risk factors, it is essential that the ECB acts as a stabilising force and boosts confidence by committing to the preservation of favourable financing conditions,” Lane, a chief architect of the ECB’s crisis response, said.
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