European Commission stresses importance of spending for recovery in euro area

19 Nov 20

Eurozone governments should continue spending into 2021 to help the economy recover from Covid-19, the European Commission has said – while warning that recovery “depends” on the approval of the contentious EU budget.


European Commission building

The European Commission building

Giving its opinion on the draft budgetary plans of the 19 countries that use the single currency, the Commission said high public spending is important while the private sector remains subdued.

“For Europe to bounce back as a competitive force on the world stage, we need targeted and temporary fiscal support measures, as well as well-chosen reforms and investments that will drive a fair, inclusive and sustainable recovery,” said Valdis Dombrovskis, European Commission vice president.

While most measures were supported by the Commission, it warned that some schemes set out by France, Italy, Lithuania and Slovakia “do not appear temporary or matched by offsetting measures”.

It also warned Belgium, France, Greece, Italy, Portugal and Spain that given the high levels of their government debt before the pandemic, that it is important to preserve medium-term fiscal sustainability.

On Monday, the next EU budget containing €1.1trn of spending for the 2021-27 period and a €750bn Covid-19 recovery fund were vetoed by Poland and Hungary.

Both governments, which are each being investigated for undermining the independence of courts, media and civil society, object to conditions tying payouts to rule-of-law conditions. The European Commission urged them to back the budget, which requires unanimous approval by all 27 EU member states.

“Against the backdrop of an interrupted rebound and very high uncertainty, governments must continue to address the crisis and support the recovery,” said EU commissioner for economy Paolo Gentiloni.

“Most measures included in euro area countries’ 2021 budgets rightly support economic activity, but a strong and balanced recovery depends on a swift entry into force of [the €750bn recovery fund] Next Generation EU.”

Gentiloni said EU governments should “show a strong sense of responsibility” to their own people and other Europeans to “get this recovery plan over the line”.

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