The President of the ECB has reacted to the proposal made by the French and German leaders on May 18. She called on the European Council to "be equal to the gravity of the economic damage and social suffering".
A recovery plan that reflects a "spirit of solidarity and responsibility
After several weeks of discussions, Emmanuel Macron and Angela Merkel have announced the creation of a 500 billion euro plan to limit the impact of the coronavirus pandemic on the European economy. The money raised through loans issued by the European Commission on the markets on behalf of the 27 member states will be paid back to them in the form of "budgetary expenditure" earmarked for the hardest-hit sectors and regions.
"This reflects the spirit of solidarity and responsibility recently expressed by the German Chancellor," says Christine Lagarde in an interview with four European media. " There can be no strengthening of financial solidarity without greater coordination of decisions at European level", she adds.
Modernizing the Stability and Growth Pact
The European Central Bank is forecasting a recession of between 5% and 12% for the eurozone this year. In the most severe scenario, the institution anticipates a 15% fall in gross domestic product (GDP) in the 2nd quarter.
According to Christine Lagarde, the health crisis facing European countries "is a good opportunity to modernize the terms of the Stability and Growth Pact", also known as the "Maastricht criteria", which have been suspended since March 20. In particular, it suggests re-examining the innovative proposals already put forward by the International Monetary Fund (IMF). One of the methods proposed is to take into account not the gross budget balance, but the primary balance representing the budget balance excluding the impact of the economic cycle.
As a reminder, the Stability and Growth Pact comprises two types of provisions: multilateral surveillance and the excessive deficit procedure, which is triggered as soon as accumulated general government deficits exceed the threshold of 3% of GDP (barring exceptional circumstances).
For his part, Bruno Le Maire, the French Minister of the Economy and Finance, would like to see the SGP rules suspended in 2021, given the scale of the Covid-19 crisis. However, he did not take on board the proposal made by the ECB President. "Europe cannot be built on national interests alone, it can only be built on solidarity", said the Minister in an interview.