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As virus restrictions bite, EU extends safety net till 2023

The European Union is set to extend for around two more years the economic safety net it put in place to help save businesses and jobs from the impact of restrictions imposed to halt the spread of the coronavirus.

As countries began locking down in panic a year ago, the European Commission activated a “general escape clause” in the euro single currency rule book, allowing the bloc's 27 governments to pour billions into emergency health care, tax relief and ailing businesses like airlines.

The Commission, the EU’s executive arm, reckons that fiscal support worth around 8% of GDP was provided in 2020, far more than during the financial crisis of 2008-2009. Economies are starting to pick up, but the slow rollout of vaccines is raising questions about how quickly things will improve.

“There is hope on the horizon for the EU economy, but for now the pandemic continues to hurt people’s livelihoods and the wider economy,” Commission Executive Vice-President Valdis Dombrovskis said Wednesday.

“To cushion this impact and to promote a resilient and sustainable recovery, our clear message is that fiscal support should continue as long as needed. Based on current indications, the general escape clause would remain active in 2022 and be deactivated in 2023,” Dombrovskis said.

In its winter economic forecasts last month, the Commission predicted that growth in the 19 nations using the euro will reach 3.8% this year and next after a 6.8% drop in 2020. Growth in the wider 27-nation EU is predicted to hit 3.7% this year and 3.9% in 2022 following last year’s 6.3% slide.

The figures hinged on the assumption that coronavirus restrictions will remain tight for most of the first half of this year but ease in late Spring, when most vulnerable people around Europe like the elderly and those with other illnesses are expected to have been vaccinated.

The decision to extend the general escape clause is a sign of just how uncertain things are.

“One year on, the battle against COVID-19 is not yet won and we must ensure that we do not repeat the mistakes of a decade ago by pulling back support too soon,” Economy Commissioner Paolo Gentiloni warned. “For 2022, it is clear that fiscal support will still be necessary.”

In a reference to future use of the euro rulebook, the Commission said that even in 2023 “all the flexibilities within the Stability and Growth Pact will be fully used.” Brussels is likely to provide member countries with budgetary guidance in May, when it releases its next series of economic forecasts.