European Union finance ministers said during a video conference on Tuesday that unlimited spending must be allowed until the recovery from the pandemic is secure.
ADVERTISEMENTThe European Union's finance ministers have signalled their commitment to continue spending for as long as is needed to combat the current economic crisis.
Following a video conference of the EU's economic and finance ministers on Tuesday, it was agreed that measures to cut increasing debt should only be applied once the recovery from the pandemic is secure.
Commission Vice President Valdis Dombrovskis says this is unlikely to happen until mid-2022.
"The key criteria is, indeed, whether the economy reaches its pre-crisis level of 2019 and currently, according to the winter forecast, our estimates are that this will happen in mid-2022 and from there is a conclusion that the general escape clause should remain activated in 2022, but no longer as of 2023," Dombrovskis told reporters in Brussels.
EU member states are bound by the Stability and Growth Pact (SGP) - a set of rules designed to ensure that member states pursue sound public finances and coordinate their fiscal policies.
But due to the magnitude of the COVID-19 pandemic, the "general escape clause" of the SGP has been executed, which is only used in exceptional circumstances to protect European citizens and businesses, as well as to support the economy after any significant shock.
This is why ministers also warned in the video conference that member states will eventually have to adapt their policies at an appropriate time to ensure fiscal sustainability over the medium-term.
According to Eurostat, debt in the 27-member bloc reached nearly 87.7 per cent of economic output at the end of the third quarter of 2020, with the figure reaching 199.9 per cent for Greece and 154.2 per cent for Italy.
German economist and director of the Centre for European Policy Studies, Daniel Gros, told Euronews that stricter spending rules will come back eventually, as is the norm in the EU under the SGP, but there could be bigger problems down the road for Europe.
"We have saved Europe's social model in the pandemic, but I think we have gone too far. We have tried to protect jobs, forgetting that in the long run, we shouldn't protect jobs, but the workers," Gros explained.
"In the United States, you had tens of millions of job losses and almost as many people have found a new job, a different occupation and that's the way the US economy advances, and if you don't change the paradigm on this front, you risk falling further behind."
The European Commission will wait until May to make a final decision on spending commitment proposals in the hope that the vaccination programme unlocks the EU's economic recovery.
