Public spending to counter Covid-19 could continue into 2022, says Eurogroup

Contentious debate looms over whether bloc's debt and spending rules should be reformed

’Uncertainty remains high until the pandemic is fully under control,’ Minister for Finance Paschal Donohoe said after the Eurogroup meeting on Monday. Photograph: Julien Behal.

The euro zone’s looser public spending policies to counteract the economic damage of the Covid-19 pandemic should stay in place until the recovery is “firmly under way” including into 2022, the Eurogroup declared on Monday.

“We are united in our approach that until the health crisis is over and recovery is firmly underway, we will continue to protect our economy through the deployment of the necessary level of fiscal support,” the joint statement from the club of finance ministers read.

“Supporting economic activity and mitigating scarring effects through timely, temporary and targeted measures is key to longer-term fiscal sustainability. Premature withdrawal of fiscal support should be avoided. The Eurogroup is committed to a supportive stance in the euro area in 2021 and in 2022.”

Minister for Finance Paschal Donohoe, who is Eurogroup president, said the focus of fiscal measures should "gradually shift" as the health situation improves and that accumulated levels of debt would have to be addressed once economic growth had decidedly returned.


“Uncertainty remains high until the pandemic is fully under control,” Mr Donohoe said.

Speaking alongside Mr Donohoe, the European Commission's economy chief Paolo Gentiloni said it was important not to prematurely remove supports. He suggested that an over-focus on curbing public spending and controlling debt had been self-defeating in the euro zone's last crisis, as it had depressed growth.

‘Support growth’

“The best way to support debt sustainability is to support growth,” Mr Gentiloni said. “We will not repeat the mistake of the last crisis.”

As the continent eases out of the pandemic, there should be shift to “sustainable medium-term fiscal strategies”, including “an emphasis on improving the quality of public finances, raising investment levels and supporting the green and digital transitions” the joint statement read.

“Member states should focus on reforms that will promote private investment and will increase the productive capacity of the euro area.”

So far, a suspension of the EU’s debt and spending rules due to the pandemic has allowed national governments to put in place fiscal support measures estimated to be worth 8 per cent of gross domestic product in 2020, as well as liquidity schemes of about 19 per cent of GDP in the euro area.

The European Central Bank president Christine Lagarde has suggested that the bloc's fiscal rules are outdated and should not be reinstated in their current form. A discussion on the issue is due later this year, though there are deeply diverging views between member states and building consensus "will be a real challenge", Mr Gentiloni said.

The EU's economy contracted by 6.2 per cent in 2020 - though the recession was not as bad in autumn as feared - with Ireland the only country in the EU to post economic growth, albeit inflated by multinational earnings.

Naomi O’Leary

Naomi O’Leary

Naomi O’Leary is Europe Correspondent of The Irish Times