EU is faced with an existential threat

US, WASHINGTON (ORDO NEWS) — The risk of uneven economic recovery after an outbreak of coronavirus poses a “significant threat” to the European Union, said one of the EU policymakers, The Guardian writes .

Paolo Gentiloni, the former prime minister of Italy and now the EU commissioner for economics, said the bloc also has a “historic opportunity” because it intends to adopt a plan to save the European economy.

A few days after the commission said that Europe had entered the “deepest economic downturn in its history,” Gentiloni said the EU needed a “sensible recovery plan” to avoid the risks of economic separation.

Closed shops and factories, non-flying aircraft and consumers who stayed at home, as a result of restrictive measures, mean that the European economy is expected to contract by 7.5% in 2020, which will be a deeper decline than during the financial crisis of 2009 .

Gentiloni is concerned that countries do not have the same resources to recover from an economic shock. The most affected countries – Greece, Italy, Spain and Croatia – face a decline in economic production (GDP) of more than 9% in 2020, while the German economy will shrink by 6.5% and the economy of Austria by 5.5 %

Meanwhile, countries have varying levels of government resources to save companies and pay wages to workers — extraordinary measures that became easier after Brussels loosened government aid rules to overcome the crisis.

Gentiloni said that requests for state assistance from EU member states were very unbalanced.

“What is clear is the uneven level of recovery and the risks that this creates for our single market, and the necessary convergence, especially in the euro area. This is something I could even define as an existential threat to the construction of the union,” he said.

“If we want to look more optimistic, this is not only an existential threat, but also, in a sense, a historical opportunity to fill the gap that we have in the common instruments of economic and fiscal policy,” the official said.

More than a decade after the global financial crisis, EU policies continue to call for deeper integration, such as a common eurozone budget and a single unit finance minister.

Gentiloni, however, said he did not speak of the Minister of Finance when he spoke of the “common tools” of economic policy. Instead, he gave an example of an EU plan for borrowing and spending € 100 billion to protect jobs in the EU.

Such plans were discussed eight to ten years ago, “and discussions went on for years without any chance of reaching an agreement,” he said.

The European Commission is developing a recovery plan after EU leaders called for a response to an exceptional economic shock in April. Ursula von der Leyen, head of the EC, said the plan would include 1 trillion euros of support, but it remains to be decided where the money will come from.

The recovery plan will be included in the next seven-year EU budget, which was a source of controversy even before the pandemic.

One unresolved issue is the balance in terms of recovery between loans and grants. France, Spain and Italy are looking for some financial transfers, while Germany, the Netherlands and other northern countries prefer to provide support through loans.

Gentiloni said that he could not distinguish between grants and loans, but made clear that he supported a certain amount of financial transfers. He said that some sectors, such as tourism, and uncertain geographic areas, need to be intervened “on the basis of this kind of solidarity, grants.”

Secondly, he added, too much dependence on loans will lead to deepening countries’ debt. He said he was optimistic about the debate. “This principle of combining grants and loans is now more clear than a month ago. The crisis has changed the awareness of the importance of solidarity,” he said.

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