The European Union executive shifted to formalize an agreement struck by EU finance ministers on March 5 to call off EU budget guidelines that limit borrowing, giving hardest-truck Italy and other governments a free hand to battle the coronavirus.
The European Commission, the guardian of EU guidelines, recommended late Friday to activate a ‘general escape clause’ in the guidelines to respond to the pandemic, which has sparked lockdown directives in most EU nations and the closure of Europe’s borders.
EU guidelines say that governments must keep cutting their budget deficits until they reach balance or surplus, and have to cut back their public debt/GDP ratio yearly till it’s at or below 60% of GDP.
Italy has been struggling to scale down its large debt of 137% of GDP due to sluggish economic progress and additional spending to offset the results of the epidemic would have usually drawn a rebuke by the Commission.
Once EU finance ministers formally approve the Commission proposal at their next meeting, government spending to battle the coronavirus will be exempted from Commission calculations of deficit and debt.
EU finance ministers, who’ve ultimate control of EU guidelines that cap government borrowing, agreed on March 5 that the economic impression of the coronavirus was an emergency and an event outside their control, which means EU budget guidelines shouldn’t apply.