BRUSSELS (Reuters) - Euro zone finance ministers pledged on Monday an “unlimited” commitment to fight the economic fallout of the coronavirus pandemic, saying they would do whatever it takes and more to restore confidence and a rapid recovery.
The promise came after a five-hour videoconference as the European Commission forecast the effects of the pandemic would turn the previously expected 1.4% European Union economic growth this year into a 1% recession or worse, as whole sectors of the economy are put out of operation.
“Finance ministers are often posed very hard choices, but seldom on matters of life and death,” the chairman of the ministers, Mario Centeno, told a televised news conference.
“We will protect our citizens and our currency come what may and with everything we have got. Our commitment to provide support in this time of need will be unlimited,” he said.
“We will do whatever it takes and more to restore confidence and support a rapid recovery. Whatever further coordinated and decisive policies are needed, we stand ready to make them,” he said.
Asked by the ministers, the European Commission estimated that euro zone fiscal support to the economy announced so far amounted to about 1% of gross domestic product, or 120 billion euros ($134 billion), for 2020.
The euro zone has also already committed at least 10% of its GDP, or some 1.2 trillion euros, in public guarantee schemes and deferred tax payments to help companies that could go bankrupt because of the epidemic and workers who could be laid off as a result of the slowdown.
“These figures could be much larger going forward,” the ministers said in a joint statement.
In addition, the ministers pledged to make full use of increased state spending for various welfare benefits deployed during economic downturns, or what the EU calls automatic stabilizers.
Centeno said EU budget rules - the Stability and Growth Pact - which normally put limits on government spending and borrowing to safeguard the euro, would be suspended for now.
“The Stability and Growth Pact will not stand in the way of our fight of this disease and its economic consequences,” he said.
The epidemic puts the EU economy in uncharted waters because it has already led to lockdowns in France, Germany, Italy, Spain, Denmark, the Czech Republic, and Poland, and caused curbs on businesses and the movement of people in many countries.
The ministers said that each country would decide individually how they would provide liquidity support for firms facing severe disruption and liquidity shortages in severely affected sectors.
Transport and tourism have virtually ground to a halt because of the pandemic. Support could encompass tax measures, public guarantees to help companies to borrow, export guarantees, and waiving of delay penalties in public procurement contracts.
Workers facing the loss of jobs or income would get short-term work support, extension of sick pay and unemployment benefits, and deferral of income tax payments.
Individual state moves so far have included Germany promising half a trillion euros in guarantees for its business - and more if needed. France has promised support for French companies and Italy will allocate 25 billion euros to Italian firms and families.
Separately, the European Commission proposed last Friday a 37-billion euro investment initiative
The European Investment Bank, owned by the EU governments, would provide almost 40 billion euros to help firms stay afloat and the euro zone would explore ways to use its bailout fund ESM which has an unused lending capacity of 410 billion euros.
The euro zone response package came after the U.S. Federal Reserve cut interest rates to near zero on Sunday. Central banks globally have take similar steps.
The European Central Bank, which took its own steps last week, has called on euro zone governments to mount an ambitious and coordinated fiscal response.
ECB head Christine Lagarde told euro zone ministers the bank would do everything necessary to avoid fragmentation of the euro zone - EU code for large differences in bond prices among the 19 countries sharing the euro.
Some economists believe the economic challenge facing the 27-nation EU and the euro zone could be bigger than the U.S. sub-prime mortgage crisis that hit Europe in 2008.
At that time, expecting a recession in 2009, EU leaders agreed to pump 1.5% of the bloc’s GDP, or 200 billion euros, into the economy. The euro zone economy shrank 4.4% year-on-year anyway, but the extra spending might have limited the size of the recession.
Additional reporting by Marine Strauss and Kate Abnett; Editing by William Maclean, Timothy Heritage and Rosalba O'Brien