March 9, 2020 / 1:14 PM / 23 days ago

France, Italy seek fiscal shock therapy to combat coronavirus

PARIS (Reuters) - France and Italy called on Monday for Europe-wide fiscal stimulus to counter the impact of the coronavirus outbreak, as Japan prepared to boost financing for affected small and mid-sized companies to more than 1.6 trillion yen ($15.63 billion).

A couple wearing masks poses for a selfie near the Louvre Pyramid in Paris, France, March 5, 2020. REUTERS/Charles Platiau/Files

The spread of coronavirus from China across Asia, Europe and the Americas has caused huge disruption to business operations, global supply chains and economic activity. Analysts say the world economy is headed for a sharp downturn, or even a recession.

Italian Prime Minister Giuseppe Conte promised big fiscal measures to cushion the economic blow in the euro zone’s third biggest economy, after his government closed off much of the country’s industrial and business heartland to fight the crisis.

“We will use a massive shock therapy. To come out of this emergency we will use all human and economic resources,” Conte said.

Strict European Union borrowing limits should be loosened to allow more room for manoeuvre and the flexibility envisaged by the EU’s budget rules should be used “in full”, he continued.

“Europe cannot think of confronting an extraordinary situation with ordinary measures,” Conte said.

French Finance Minister Bruno Le Maire echoed Conte’s appeal, urging coordinated action across the European Union’s single currency bloc.

He said the EU, where the vested interests of individual nations often slow decision-making, needed to prove its political effectiveness.

“I expect a strong, massive and coordinated response from Europe to avoid the risk of an economic crisis after the epidemic,” Le Maire told France Inter radio.

Euro zone finance ministers could ill-afford to lose time commiserating over the tough economic environment at their meeting, he said, and would have to decide on a plan to support economic activity.

Le Maire said he would propose fiscal and budgetary steps that constitute a “coordinated and massive stimulus plan”.

Paris has been using the crisis to push for more public spending by Germany and others with fiscal leeway.

Italian bond yields soared on Monday after the government ordered the virtual lockdown in the north, while safe-haven German debt yields hit new record lows as a crash in global oil prices amplified recession fears spurred by the new coronavirus.

In Japan, data showed the economy shrank more than expected in the fourth quarter of 2019, before the coronavirus outbreak, exacerbating economic fears just as the epidemic increases recession risk.

Tokyo will triple the special financing planned for small and medium-sized companies hit by the virus, according to a government document seen by Reuters. The measure is expected to be announced on Tuesday.

Britain’s finance minister Rishi Sunak is likely to use some leeway in public finances to fight the spread of coronavirus when he presents the first post-Brexit budget on Wednesday.

The main aim of the tax and spending plans will be to “level up” struggling regions where voters switched traditional allegiances to help Prime Minister Boris Johnson win December’s election.

Reporting by Leigh Thomas; Additional reporting by Dominique Vidalon; Editing by Catherine Evans

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