To survive this crisis, the Eurogroup may have to throw away the old rule book.
The euro area will be among the worst impacted by the global recession, the International Monetary Fund (IMF) has warned as it slashed its global growth outlook.
The IMF now forecasts that growth in the eurozone and the UK will shrink by 10.2 per cent this year — higher than the 8 per cent fall predicted for the US.
Global growth, meanwhile, is projected to shrink by 4.9 per cent this year, down from a -3 per cent prediction released in April.
Individual EU member states have injected billions of euros into their economy to prevent bankruptcies and safeguard jobs.
The European Union Commission has also presented a €750 billion recovery fund for the bloc that would mostly doll out grants financed by pooling debt — a first for the union.
For the euro area, the task of ensuring the single currency, which barely survived the previous crisis of 2008-2012, is protected falls upon the Eurogroup.
What is the Eurogroup?
The powerful, informal group of finance ministers first met in June 1998, months before the euro was born as a virtual currency and years before it entered into circulation. Its mandate was strengthened in late 2008 as the crisis precipitated by a downturn in the US housing market ravaged economies worldwide.
Its main task is to ensure close coordination of member states' economic policies in order to boost growth.
It usually meets once a month, on the eve of the Ecofin Council meeting which brings together finance ministers from the entire EU.
The Eurogroup currently has to trash out the details of the Commission's proposal which includes the issuance of so-called coronabonds to finance the EU's recovery.
Backed by France and Germany, the proposal is embraced by some — mostly southern —member states but rejected by other — mostly northern — countries. Unanimity, however, is required for it to be approved.
Experts believe finance ministers have their work cut out for them, stressing that the rule book used up to now needs some serious revisions.
'Can't go back to business as usual'
Political scientist Patrick Kaczmarczyk wrote for instance that "to survive the COVID-19 crisis, the euro area can't go back to business as usual".
To get itself out of the previous financial crisis, the euro area insisted the most troubled countries — Greece, Portugal, Italy and Spain — agree to drastic austerity measures to rein in their deficits. A new rule has since been adopted under which member states' deficit cannot be higher than 3 per cent of Gross Domestic Product.
"In the current context, it is certain that the COVID-19 crisis will increase deficits across the Eurozone," Kaczmarczyk wrote in a blog post, highlighting that "many southern countries, including France, have not had a chance to substantially recover from the last crisis".
"A continuation of austerity and the obsession with government deficits will deepen discontent among the disenchanted, and the winners will likely be right-wing anti-EU politicians.
"A rethinking in Berlin and Brussels of its approach to economic policymaking will therefore be paramount to preventing a disintegration of the monetary union," he went on.
In a joint note for the Centre for Economic Policy Research (CEPR), Stephen Cecchetti, chair of the Brandeis International Business School, and Kim Schoenholtz, professor of history of financial institutions and markets at the NYU Stern School of Business, described COVID-19 as "the largest shock to the euro area economy since the euro began in 1999 (and probably the biggest since the end of WWII)."
They underlined that risk-sharing among euro countries "remains significantly less developed than in the US" and that as a result "shocks to euro area member states still cause larger economic and financial dislocations".
They add that "it is difficult to imagine a crisis that would provide greater incentive for risk-sharing than the current one" and that "while such solidarity has always been grudging, it seems reasonable in this crisis to expect another upward ratchet in euro area risk-sharing."
The Eurogroup, which met earlier this month, has so far remained tight-lipped on their discussions behind closed doors.
"Today the finance ministers looked at how they can best coordinate their efforts when putting together their recovery plans. Coordination, in particular within the eurozone, is key to ensure that we avoid divergence and the build-up of our imbalances. Protecting the single currency is as critical as protecting the single market," outgoing President Mario Centeno wrote in a statement following the meeting.
In its latest update, the IMF also slashed its forecast for 2021, underlining that "this crisis like no other will have a recovery like no other."
The financial institution initially forecast a 2021 rebound of 5.8 per cent but is now tabling a 5.4 per cent rise in the event that there is no new major outbreak. Should a strong second wave unleash itself across the world, growth would then be no higher than 0.5 per cent in 2021.
Gita Gopinath, the IMF's Chief Economist, called on policymakers to remain vigilant "given the tremendous uncertainty".
So far, the global economy has benefitted from over $10 trillion (€8.9 trillion) in fiscal support and monetary policy, the IMF noted.