Major business groups in Germany, France and Italy are urging European governments to ramp up their joint fiscal stimulus efforts against the economic downturn cased by the virus outbreak, saying that the EU response “must be of an unprecedented scale.”
The call was made in a four-page appeal published Tuesday by Germany’s BDI, Italy’s Confindustria, and France’s Medef business confederations.
The business groups said that European stimulus efforts must go beyond the first package of emergency help at the European level, involving lending and guarantees from the European Investment Bank, the European Commission and the European Stability Mechanism bailout fund.
“We call on European leaders to rapidly approve a bold proposal” for the upcoming EU budget and for a European recovery fund, the groups said.
Leaders of the 19 countries that use the euro currency have approved up to 540 billion euros in emergency loans but have balked at shared borrowing that would help keep debt levels at the national level from ballooning. The European Commission predicts the eurozone economy will shrink by 7.7% this year, more than during the global financial crisis in 2009. That will sap tax revenues just as governments need to spend more to support health care, businesses and the economy.
Italy, which has been hard hit by the outbreak, in particular faces high pre-existing debt levels that could constrain stimulus spending. Common borrowing and fiscal transfers have been opposed by countries in northern Europe like Germany, the Netherlands and Austria, that are in better fiscal shape. Nine members of the 19-country eurozone including France, Spain, Italy and Ireland have signed a letter supporting common borrowing. European leaders have pushed the question to the European Commission, which is developing a proposal for a recovery fund.
Individual governments have passed stimulus at the national level in varying amounts. The concern among some economists and officials has been that it’s precisely the hardest hit countries such as Italy and Spain that are able to do the least stimulus.
The business leaders said in their statement that “a strong fiscal response must involve a high degree of solidarity” and “a good balance of loans and grants.”