World News

EU ready to loosen purse strings as coronavirus bites economy

By Francesco Guarascio

BRUSSELS (Reuters) – The European Union is considering measures to protect its economy against the impact of the coronavirus outbreak, top officials said on Monday, as health risks in Europe were raised to high after the virus spread to most countries in the bloc.

About 2,100 cases of coronavirus infection have been confirmed across 18 of the 27 EU states and 38 EU citizens have died, according to figures released on Monday by the European Commission, the EU’s executive.

The sudden outbreak of the disease in Europe since mid-February is pushing EU states to coordinate economic and health responses. Cases had previously been concentrated in China, where the coronavirus emerged in December.

“The EU is ready to use all the available policy options if and when needed to safeguard our growth,” EU economics commissioner Paolo Gentiloni told a news conference, saying risks threatened by the outbreak had now materialised.

He listed transport, tourism and carmakers among the sectors most affected.

European Central Bank Vice President Luis de Guindos said the ECB is also ready to help but that governments should be the first line of defence.

“Fiscal policy should be the main instrument that is used in response to this situation,” de Guindos said. “Our reaction has to be calm … and prudent.”

In an extraordinary conference call on Wednesday, EU finance ministers will discuss immediate actions at national level to reduce risks of an economic crisis, Gentiloni said.

He said governments can “support the healthcare systems, assure liquidity to firms and perhaps (assure) phased timing of debt payments, face unemployment risks”. Some states had already introduced such measures, Gentiloni added.

The teleconference will also prepare the ground for a possible “coordinated fiscal response” to be decided in March by European finance ministers. That could involve extraordinary measures similar to those adopted to combat the 2008 global financial crisis, he said, without giving more details.

Then, the EU introduced temporary exceptions to rules on state subsidies which allowed member countries to support their economies more freely.

In February, the EU’s economic powerhouse Germany dropped its traditional opposition to more investments at euro zone level as concerns about a slowdown grew.

In a further sign that the EU is adopting a more lenient approach to fiscal policy, Gentiloni praised measures announced by the Italian government to help its economy withstand Europe’s largest outbreak of coronavirus.

He described as “proportionate” the package of measures worth 3.6 billion euros ($3.5 billion) announced on Sunday by Finance Minister Roberto Gualtieri, even though it will further inflate Italy’s budget deficit.

HEALTH, BORDERS

At the same news conference, European Commission President Ursula von der Leyen, said the EU’s disease prevention agency ECDC had raised its assessment of coronavirus risks “from moderate to high” in the EU.

“In other words, the virus continues to spread,” she told reporters. The ECDC said the risk was now “moderate to high”, up from “low to moderate”.

To coordinate the EU reaction to the outbreak, EU health ministers will gather in Brussels on Friday for an extraordinary meeting, the second this year to address the coronavirus crisis.

The health council could be held in parallel with an extraordinary meeting of EU migration ministers, an EU official said.

EU experts have so far agreed that turning people potentially infected with the virus back at borders could help spread the disease, but this position is subject to weekly reviews.

Closing Schengen’s internal borders on health grounds would be unprecedented.

Speaking in London, de Guindos said China’s measures to combat the outbreak could affect euro area exports and may cause disruptions in global supply chains. Services could also be affected, particularly by travel disruptions, he added.

Asked about the potential for an ECB rate cut, he echoed other ECB rate setters who have said it is too early for the central bank to act.

“We should not get confused. We are not almighty, we do not have the philosopher’s stone,” De Guindos said, adding that the ECB was discussing any possible action in coordination with other central banks.

(Reporting by Francesco Guarascio @fraguarascio; Additional reporting by Robin Emmott and Jakub Riha; Editing by Philip Blenkinsop and Catherine Evans)

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