The Portuguese Minister of Finance, Joao Leao, together with the Spanish Nadia Calviño, this Saturday in Lisbon.MARIO CRUZ / EFE

The European Union wants to avoid taking any misstep that derails the fragile process of economic recovery. The Twenty-seven conspired this weekend in Lisbon to avoid an untimely withdrawal of fiscal stimuli that widens social and territorial gaps. The main challenge now is to prevent at all costs a wave of insolvencies that endangers the jobs saved with the European social shield. The European Commission has decided, as it will facilitate this task by putting a return to fiscal discipline until 2023. France is even asking to increase the amount of the European bazooka.

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The economic recovery gains momentum as the vaccination process continues relentlessly. But Europe already learned last year that the voracity of the virus can wipe out exuberant growth rates. And there are no doubts among the Twenty-seven: the price of withdrawing stimuli at the wrong time can be very high.

Brussels will formulate its fiscal policy proposal for 2022 on June 2, the conclusion of which was advanced this Saturday by the Executive Vice President of the European Commission Valdis Dombrovskis. “Based on the spring economic forecast, we can confirm our approach that we would keep the general escape clause activated in 2022, but not in 2023,” he said.

João Leão, Minister of Finance of Portugal (who has the rotating presidency of the EU) affirmed that among his colleagues “there was agreement” to “keep the fiscal rules suspended to ensure that the focus is on economic recovery.” Even so, community sources explained that the decision to keep this clause activated – which allows the rules to be nullified – should not be voted on by the countries. The process is the reverse: the Council should only take a decision if the Commission proposes to reactivate it. And that predictably won’t happen for another year.

In the informal council of ministers, held in Lisbon, the heads of Finance and the governors of the central banks made a list of the wounds that this pandemic can leave. International organizations have been warning of the risk of a wave of bankruptcies when aid begins to be withdrawn. The International Monetary Fund (IMF) has indicated that, among advanced economies, southern Europe is the region most exposed to the gale due to the high weight of leisure and tourism and the highest proportion of SMEs.

In another report from March, the agency concludes that 8% of solvent companies before the pandemic could stop being solvent by the end of 2020 and estimates that measures equivalent to between 2% and 3% of GDP will be needed to help them. “The main risk we identify for financial stability is a potential wave of insolvencies in the corporate sector,” said Luis de Guindos, vice president of the European Central Bank (ECB), who asked governments to withdraw aid and the moratoriums to companies that is gradual and prudent.

The president of the ECB, Christine Lagarde, the day before had cleared up the fears that may be installed in some countries, such as Germany, that the fiscal stimulus will lead to an excessive rise in prices. Lagarde said that this rise is of a “temporary nature” and asked the ministers to maintain support policies in the face of “uncertainty”, the risks of greater “divergences” in the euro zone and the difficult situation that those who are still going through jobless.

During the council, the ministers have had several reports on the table, among them one of one think tank Bruegel who reels off all these inequalities of which Lagarde noticed. The document is clear: “Some of the divergences within the EU may become permanent or at least long-lasting.”

Bruegel’s text puts other inequalities black on white: generational inequalities, after this crisis has once again affected young people “disproportionately”; the educational, because it has deprived the most vulnerable of continuing their studies, and the digital, by having harmed those who cannot telework.

The report recalls that the pandemic “probably” will not yet be controlled in 2022 and that the virus may “even become endemic.” “We advise policy makers not to withdraw fiscal support too early. On the contrary, we see a short-term fiscal impulse justified to return to the growth path of 2019 earlier than expected, ”the document adds.

More money for investment

That is the same analysis that Paris does, which is concerned that the EU is still far from recovering the growth trajectory before the pandemic, which already seemed somewhat anemic. “Do we want to play in the first division or lag behind the United States and China?” Asked French Minister Bruno Le Maire.

Paris’ demands to give more ammunition to the reconstruction plan sound somewhat premature in some capitals, which prioritize achieving the five ratifications that are missing to carry out the recovery package, among which are those of Austria and the Netherlands. The second vice president, Nadia Calviño, defended that the priority now is to approve “as soon as possible” the recovery plans so that European funds begin to flow in the economy and maintain an expansive fiscal and monetary policy. “There is unanimity that a premature withdrawal of fiscal stimuli should be avoided,” he said.

The EU partners, also the hawks, are now opting to focus on recovery plans and leave the debate on the return and reform of fiscal rules to the end of the year. The Portuguese presidency has set itself the objective that the first plans can be approved by Brussels in June and go through the Council that same month to start watering the capitals with aid. Diplomatic sources doubt that the deadlines can be shortened. “Having a decision by the Council at the end of July is already optimistic,” they point out.

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