France Is Revving Up the Campaign for Fiscal Stimulus in Europe
French Finance Minister Bruno Le Maire is leading the charge for fiscal stimulus in the European Union.
Le Maire told Francine Lacqua in a Bloomberg Television interview on Wednesday that the European Union’s 750 billion-euro ($890 billion) recovery plan is “not on the right track” and that he’s “deeply concerned” that the slow implementation of an initiative first agreed in July last year could hold back growth as the bloc looks to rebuild from the coronavirus lockdowns.
“If we want a strong economy, we need to invest, and invest right now,” Le Maire said.
The French finance chief’s anger over the slow rollout of the recovery fund hint at broader concerns Europe is falling further behind the U.S., where President Joe Biden’s $1.9 trillion fiscal package is already being disbursed despite being approved some eight months after the initial agreement on the European plan.
European Central Bank officials have also shared concern at the risk of delays in Europe and Le Maire’s boss, President Emmanuel Macron, urged EU leaders to consider further measures at a virtual summit last month.
“The United States of America was more innovative, more ambitious, it dreamed more than us and it spend more money to innovate faster and stronger,” Macron told reporters after the talks. “In the next few weeks and months, we will have to continue thinking and decide on the appropriate strategic, budget and investment answer to this crisis.”
The EU is, in fact, still on track to meet the timetable that Macron himself endorsed last July following difficult negotiations to win the support of countries like the Netherlands and Denmark, who were wary of signing up to jointly-backed debt issuance alongside states with weaker finances.
Under the landmark agreement, the recovery fund is due to pay out its first round of grants this summer. Yet delays or hiccups in its ratification by national parliaments and a surprise legal challenge in Germany risk pushing back the timeline.
The International Monetary Fund on Tuesday forecast that the euro region this year will expand by 4.4%, compared with a 6.4% expansion in the U.S.
The EU’s decision to link funds to the implementation of structural reforms and key investments is seen as way to boost growth in the medium term, but it also means critical financing may be more prone to further holdups and complications as governments rush to see through ambitious recovery programs.
Macron has insisted that the tool shouldn’t be considered a one-off measure and long advocated for a common budget that could support the bloc’s economies in a downturn.
During last month’s summit, Italian Prime Minister Mario Draghi also warned his fellow leaders that they shouldn’t withdraw support measures too soon, and that they need to think about how the EU’s fiscal framework will take into account the dramatic economic crisis the bloc is going through, according to a person familiar with his remarks.
What Bloomberg Economics Says...
“The EU needs to accelerate the implementation of its roughly 700-billion-euro Recovery and Resilience Facility. This is small in comparison with the $1.9 trillion of fiscal stimulus package in the U.S. and different in nature, but it’s still important.”
-Jamie Rush, Maeva Cousin and David Powell. For the full note, click here
The bloc’s current fiscal rules require countries to aim for budget deficits of less than 3% and debt below 60% of gross domestic product.
But those rules were drawn up at a time when policy makers could scarcely imagine how low government borrowing costs might fall after years of successive financial crises and consistently low inflation. Nor how public finances might be transformed by a pandemic.
The European Commission forecasts that euro-area budget deficits will average more than 6% this year and the bloc’s debt load will exceed 100% of output. Discussion on how to update the rules are due later this year.
Before then, Germany’s fall election could potentially change the balance of power between those countries focus on boosting growth and those more concerned about containing borrowing. With Chancellor Angela Merkel due to step aside after 16 years in power, her fiscally conservative bloc is struggling in the polls and faces calls for massive spending on clean technology from the Greens.
The Netherlands’ role as an opponent of fiscal integration is up for debate after fiscal hawks suffered losses in law month’s election.
The attitude of the Netherlands should be “not one of stepping on the brakes but making sure you are able to steer the ship and accelerate,” Sjoerd Sjoerdsma, a Dutch lawmaker from the D66 party, said in an interview. D66 was one of the big election winners and is set for a prominent role in the next coalition.
“I just want to urge all the European member states to come back to the spirit of 2020 and to reignite the impulse that we have been able to give to the European recovery in 2020,” Le Maire said. “Let’s come back to this spirit of solidarity, of determination, of willingness to have a quick economic recovery everywhere in Europe.”
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