The EU Commission plans to free up money for member states while urging them to act quickly in supporting businesses and workers to avoid a prolonged economic crisis amid the coronavirus outbreak.
“It is not possible to stop the virus, and it is of utmost importance to slow down the spread of the virus,” said EU commission president Ursula von der Leyen late on Friday (13 March).
“I am convinced that the EU can withstand this shock,” she added.
“But each member state needs to live up to its full responsibility and the EU as a whole needs to be determined, coordinated and united,” von der Leyen said.
The commission said the EU and the eurozone will go into recession this year due to the virus, and is expected to bounce back in 2021, but that swift and bold action is needed by EU governments.
Funding public health care expenditure, liquidity support for companies and income support for workers are crucial to “cushion” the shock to the economic system, which is coming to a standstill as governments introduce tough restrictive measures to slow down the outbreak.
The commission plans to unlock €8bn for member states in next two weeks, and wants EU countries to direct an additional €29bn EU budget money to help the health sector, tourism, SMEs and workers.
The new mechanism means member states can hold onto money they owed to the EU under co-financing schemes for projects and use it to leverage more EU money for the crisis-hit sectors and areas.
The distribution of that money is for now tied to the allocation agreed under the previous EU budget, meaning Poland would get a bit more than Italy where the outbreak is the toughest currently, but EU officials stressed this was the quickest way to unlock actual material help.
The EU executive also said it would provide the “maximum flexibility” when it comes to state-aid rules and fiscal rules, so that EU governments can act quickly to mitigate the economic fallout.
‘Whatever is necessary’
“We stand ready to do more as the situation evolves. We will do whatever is necessary to support the Europeans and the European economy,” von der Leyen stressed a day after European Central Bank governor Christine Lagarde failed to calm investors and markets.
The commission also said it is ready to activate a clause in EU fiscal rules that would allow a suspension of budget commitments by countries most affected by the coronavirus crisis – but not completely suspend them.
“We are not suspending the stability and growth pact. We are using flexibility which is there in the stability and growth pact,” Valdis Dombrovskis, commission vice-president in charge of economic affairs, said.
Spending on crisis-hit companies, workers, buying medical equipment and supporting sectors such as retail, transport and tourism could be excluded from budget targets.
“We are faced with a sudden shock, hopefully we are dealing with a temporary shock, and we need to finance temporary shock, need to provide liquidity to companies especially SMEs. We need to avoid that this temporary shock has a more negative lasting effect on the economy,” commission vice-president Valdis Dombrovskis said.
Germany and France in the meantime pledged financial support to protect individuals and small businesses from the economic damage.
Von der Leyen warned member states not to unilaterally shut down borders across the EU – on the day that Slovakia, and the Czech Republic both closed their borders to foreigners.
Austria, Slovenia and Hungary have also suspended the rules of the passport-free Schengen zone and reimposed border checks.
“Certain controls may be justified, but general travel bans are not seen as being the most effective by the World Health Organization,” von der Leyen said.
The commission instead wants to propose guidelines for health screening at the borders, warning that any measure that is taken must be proportionate.
Von der Leyen also said the commission is taking action to deal with a shortage of protective equipment such as masks.
Several countries including Germany and France abruptly banned exports to guard their own supplies, which have been criticised by others, such as Hungary and Sweden.
“It is not good when member states take unilateral action, because it always causes a domino effect and that prevents the urgently needed equipment from reaching the patients, from reaching hospitals,” she said.
“Ultimately it amounts to reintroducing internal borders, at a time when solidarity between member states is needed, she said, adding that France and Germany are “willing to adapt their national measures, as we requested.”