MNI SOURCES: Eurozone Fiscal Response To Virus May Be Modest

By David Thomas

     BRUSSELS(MNI) - Sources close to the Eurogroup remain sceptical that the

coronavirus crisis will spur significant fiscal stimulus in the eurozone despite

the pledge Wednesday from its chief Mario Centeno that "no efforts will be

spared."

     The Euro Working Group, acting as sherpas for the March 16 Eurogroup

meeting, meet today to thrash out policy options for ministers to discuss when

they meet on March 16, but sources say they are not holding their breath.

     "You shouldn't be expecting a result on March 16," one EU official said.

     "It's a question of taking the right measures at the right time - so there

are two variables - the right policy options and the timing."

     In principle, EU officials, like EU Economic Affairs Commissioner Paolo

Gentiloni, have committed to approving requests from member states seeking

'exceptional flexibility' - in effect permission to stand back from their

current budgetary consolidation path because of the negative economic impact of

the crisis.

     But even here it will still be necessary for the supplicant state to

undergo the traditional Commission assessment and win approval to stand back

from its current budgetary path.

     --FISCAL RECTITUDE

     "There will still need to be a bilateral discussion between the state and

the Commission will still need to make its assessment of whether such a

suspension is warranted."

     In addition, officials concede that the more traditionally frugal member

states have not abandoned their commitment to fiscal rectitude and remain on

alert for any sign that the crisis is being exploited by more wayward states to

loosen rules.

     "That tension is alive and well - it won't disappear overnight. You can

expect that there are still some countries who don't want to see the crisis used

as an excuse to throw out the Stability and Growth Pact," another official said.

     Another source made the point that the current crisis undermined the

argument that green investment should be excluded from any assessment of a

country's compliance with EU fiscal rules.

     "In a crisis like this what a country needs is fiscal room and what is

needed now is current spending, not long-term investment."

     One official noted the meeting between the French and German finance

ministers earlier this week, at which it was apparently agreed that "bold and

decisive action" would be taken - "if necessary".

     The source surmised that it was pretty obvious which country had called for

decisive action and which had added the phrase "if necessary".

     "That shows there is no real appetite for fiscal action yet."

     "And what would fiscal policy do at this point, there is only an argument

for it in Italy at this point."

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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