ECB’s Rehn Confident Europe Is Headed for Common Fiscal Action
Rehn reiterated calls for a Europe-wide approach to the crisis that doesn’t rely solely on monetary policy.
(Bloomberg) --
European finance ministers are likely to agree next week on a compromise solution that would ensure a common fiscal response to the economic fallout from the coronavirus pandemic, according to European Central Bank policy maker Olli Rehn.
Rehn, the Finnish central bank chief and a former European Commissioner for Economic Affairs, reiterated calls for a Europe-wide approach to the crisis that doesn’t rely solely on monetary policy.
“A systemic crisis calls for a systemic solution,” he told Bloomberg Radio on Friday. “This is a Europe wide crisis and requires a Europe-wide solution.”
While individual euro-area countries have announced spending plans, European leaders have squabbled over a common stance that would pave the way for greater efforts to cushion the economic blow from the pandemic.
Finance chiefs plan to hold talks on Tuesday in a bid to bridge entrenched differences on the best strategy. Countries including Germany and the Netherlands are resisting calls for a joint debt issuance, preferring instead that more fiscally-vulnerable members such as Italy and Spain to seek loans from the European Stability Mechanism, the region’s bailout fund.
Euro-area finance ministers “are heading towards a compromise solution. I hope they will reach a compromise solution which will include both credit lines and using of the EU budget.”
“I’m quite confident that next week we will see an agreement,” he said, without adding further details. ECB President Christine Lagarde is set to be on the finance ministers’ video conference.
The activation of the region’s bailout fund would open the way for the ECB to start massively buying the bonds of stressed economies as part of its Outright Monetary Transactions program, which was set up during the 2012 debt crisis but never used. The caveat is that ESM loans are supposed to come with strings attached, attaching a stigma to the program.
Rehn, said he wouldn’t “speculate at this stage” whether the OMT would be needed, but that it is clearly part of the ECB’s toolbox.
It “requires a program under the European Stability Mechanism, and this seems to have been rather contentious among the member states in the discussions recently,” he said.
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