Multi-speed Europe

• On 20 May the European Commission released its country-specific recommendations for economic and fiscal policies under the 2020 European Semester.
• In response to the dramatic COVID-19 shock, all euro area countries implemented packages of fiscal measures.
• These packages consist of discretionary fiscal stimulus measures, state guarantees for loans to firms and other liquidity support measures.
• According to the European Commissions Spring 2020 Economic Forecast, the discretionary fiscal measures amount to 3.25% of GDP at the aggregate euro area level.
• The depth of the COVID-19 shock and the size of the fiscal response have led to a drastic deterioration and heterogeneity in fiscal positions.
• In 2021, under unchanged policies, government deficit and debt-to-GDP ratios are expected to decline, albeit remaining far above pre-crisis levels.
• All countries will need to continue supporting their economies to recover from the severe shock, while safeguarding medium-term fiscal sustainability.
• Subsequently, When economic conditions allow, countries are recommended to pursue fiscal policiesaimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability,while enhancing investment.
• Fiscal policies will then need to resume the adjustments provided for in the Pact.

Chart B General government gross debt, 2019-2021 (percentages of GDP)

• Safety nets for workers, businesses and sovereigns have been put in place, amounting to a package worth up to 540 billion.
• [8] Second, a 25 billion pan-European guarantee fund will be created to strengthen the activities of the European Investment Bank (EIB).
• [9] Third, as a safeguard for euro area sovereigns, a Pandemic Crisis Support instrument was established, based on the European Stability Mechanisms (ESM) existing precautionary credit line, the Enhanced Conditions Credit Line (ECCL).
• Access granted will be 2% of the respective Member States 2019 GDP, with an overall envelope of 240 billion.

INTERVIEW

Interview with Il Sole 24 Ore

Interview with Philip R. Lane, Member of the Executive Board of the ECB, conducted by Isabella Bufacchi on 8 June

• Italy is at the forefront as one of the hardest-hit countries, with less fiscal space and high public debt.
• How will Italys recovery out of the COVID-19 crisis be helped by the ECB, and by being a member of the euro?
• We had a pandemic, which is a common shock, and a common response from the ECB as the common central bank.
• This is very important since it is unlikely that individually all countries could have responded on the same scale.
• When this big shock arrived in the middle of March, the ECB responded decisively to stabilise financial markets because there was a huge dislocation.
• The ECB showed it could be an anchor of stability and prevent self-fulfilling dynamics that otherwise could have escalated.
• But when a shock is so large and uncertainty exceptionally high, it is difficult to have adjustments that are orderly and smooth.
• So it was very important for central banks in the world to step in to stabilise financial conditions.
• The stock markets are lower and the average sovereign yield for euro area Member States is higher than before the shock.
• Then the pandemic arrived, and our projections indicate that this shock is having a significant negative impact on inflation.
• And we also do not have now the imbalances in the euro area that we had in the last crisis.
• Yes, many new tools have been created to fight the pandemic: the European Stability Mechanism pandemic support, SURE, the recovery facility, PEPP.
• Monetary policies and fiscal policies are working in the same direction when these face a huge shock.
• The German Constitutional Court raised an issue on the risk that the ECBs monetary policy would get into the domain of fiscal policy

• Our committee has been reminding member states that they are bound by European law, the Schengen borders code.
• The law says that all restrictions should be time-framed and that the grounds for suspension should be reasonable and proportional.
• Read more on what the EU can do about the reopening of Schengen borders

  Does the Schengen zone need better coordination and governance?

• Watch the full interview, which also delved into Schengen enlargement, migration, asylum and the use of personal data in the fight against Covid-19, on our Facebook page.

• They stress that a swift and coordinated return to a fully functional Schengen area is of utmost importance to safeguard freedom of movement, one of the main achievements of European integration, and to ensure the EUs economic recovery after the pandemic.
• Restrictions on freedom of movement could be lifted where the public health situation in neighbouring regions has comparably improved.
• Except for these three countries, Cyprus and Ireland, all EU countries are part of the Schengen area.
• The plenary is expected to vote on the resolution in its plenary session taking place 17-19 June.