Italian prime minister Giuseppe Conte is preparing to increase Italy's fiscal stimulus program for the fourth time in a month, officials said, after the European Union agreed to stretch its budget rules to the limit to help member states fight the coronavirus.
While finance ministry officials in Rome were working out how to double their existing package to as much as €16 billion, Mr Conte joined a video conference with the other EU leaders on Tuesday and appealed to them to show the same determination and solidarity they displayed during the euro crisis. A spokesman for the Italian finance ministry declined to comment.
“We will make full use of the flexibility which exists in the Stability and Growth Pact,” commission president Ursula von der Leyen said at a press conference afterward. “We will clarify rules for the game for member states very quickly - there will be guidelines by the end of the week.”
With the number of confirmed cases in Italy passing 10,000, Mr Conte called on the European Central Bank to help shore up the economy, according to one European official, who spoke on condition of anonymity. The premier even evoked the "whatever it takes" language that came to symbolise the institution's key role in stabilising the euro area in 2012, the official said.
ECB president Christine Lagarde said she'll propose measures to support small- and medium-sized businesses when the governing council meets on Thursday, Portuguese prime minister Antonio Costa said. She also urged governments to do their bit by delivering fiscal stimulus, according to another official with knowledge of the call.
Mr Conte is wrestling with an unprecedented economic and health crisis that is threatening to overwhelm hospitals in the industrial engine room of northern Italy and is set to tip the country into a brutal recession.
The prime minister's response to the virus hasn't been courageous and Italy needs to commit at least €50 billion to economic relief, opposition League party leader Matteo Salvini said in an interview with Corriere della Sera. After meeting with Mr Conte and other political leaders on Tuesday, he called for a Europe-wide lockdown to prevent countries from waging economic war on Italy.
Leeway
On Monday, Mr Conte signaled he’d asked the EU for more leeway over spending rules and ordered a nationwide lockdown in an effort to stem the contagion. It’s still not clear whether those measures will be enough with the death toll rising to 631 on Tuesday.
The European leaders who joined Mr Conte on Tuesday's two-and-a-half hour call pledged to use all available tools at their disposal including bending fiscal and state-aid rules to shield the bloc's economy from the impact of the coronavirus outbreak. But they stopped short of declaring the coordinated fiscal stimulus program that Mr Conte and French president Emmanuel Macron were demanding.
"The participants were in agreement that member states will deploy all necessary resources for economic stability," German chancellor Angela Merkel's spokesman said in an emailed statement. Germany, the bloc's fiscal superpower, has repeatedly ruled out unleashing the full force of its budget capacity to backstop European growth.
Another European official said the mood on the call was more somber than at any time since the height of the euro-area debt crisis. There was a real sense of emergency and a general feeling that the EU had been seen as being too slow to react, at least in a joined up way, the official said. All agreed it was vital to show solidarity with Italy and some seemed shaken after Mr Conte spoke.
While the ECB has limited policy space to act, expectations are mounting among economists that it will cut interest rates deeper into negative territory and take steps to help struggling small firms. Some also predict bond purchases will be boosted. – Bloomberg
