EU debt crisis: Brussels forced to scrap own rules as coronavirus eviscerates Eurozone

EU at ‘crunch point’ over future of the Eurozone says expert

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The European Commission will propose suspending the fiscal orders for an extra year in 2022 to give capitals extra flexibilities to rebuild after more than a year of coronavirus lockdowns. Eurocrats last year triggered the general escape clause of the Stability and Growth pact to allow governments to spend beyond their means and EU rules. Under usual EU rules, member states are expected not to exceed 60 percent debt-to-GDP when submitting their annual budgets to Brussels.

Public debt rates have soared with governments dishing out vast sums of cash to support their economies while measures are in place to curb the spread of Covid.

Economy commissioner Paolo Gentiloni said: “Our decision last March to activate the general escape clause was a recognition of the gravity of the unfolding crisis.

“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.

“For 2022, it is clear that fiscal support will still be necessary: better to err towards doing too much rather than too little.”

Commission vice-president Valdis Dombrovskis added: “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.”

The so-called general escape clause is expected to be deactivated in 2023.

Despite being handed extra freedom from Brussels’ fiscal rules, member states were urged not to simply add to their already devastating mountains of debt.

“Timely, temporary and targeted measures will allow a smooth return to sustainable budgets in the medium-term,” Mr Dombrovskis said.

The Commission has said it will not reintroduce the rules until the bloc’s economy has recovered to pre-pandemic levels.

France is leading calls for the bloc’s Stability and Growth Pact to be overhauled before it is reimposed on member states.

Last year Clement Beaune, France’s Europe minister and a close ally of President Emmanuel Macron, said it was “unimaginable” that the mechanism could remain the same after the pandemic.

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But any EU proposals to reform the Pact are not expected to be tabled before the German election in September, given the huge political sensitivity of the issue.

The coronavirus crisis has smashed the Eurozone economy, which slumped 6.8 percent last year.

Commission economists have predicted it will bounce back just 3.8 percent this year and the same in 2022.

The downturn is expected to pave average debt levels to 100 percent of gross domestic product.

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But some states are expected to go well beyond that figure as they count the cost of the pandemic.

Italy’s drastically increased public spending and record-setting economic slowdown has seen the country’s debt climb to 155.6 percent of GDP.

Greece recorded the third-highest increase in sovereign debt in the world last year, according to a survey by the Institute of International Finance.

Athens mountain of debt was recorded at 176.6 percent of GDP last year and is expected to grow to over 186 percent in 2021.

Spain is in a similar predicament with its debt soaring from 95.5 percent of GDP in 2019 to 117.1 percent in December 2020 – the highest level in more than a century.

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