Euro falls as finance ministers reach impasse on shouldering huge Covid-19 burden
The euro fell and the cost of borrowing for the Italian state rose as a marathon teleconference meeting of eurozone finance ministers failed for the time being to reach an agreement on ways Europe could together shoulder the huge fiscal costs entailed by the Covid-19 crisis.
The impasse was reached as Italy, whose economy has been reeling for weeks from the crisis, rejected conditions sought by the Netherlands for any rescue package.
But Ben Tonra, professor of international relations at UCD, said there was some signs of hope coming out of the talks and that "there might be a compromise in the end".
"What we are looking at right now is the Germans and the French trying to dig the Netherlands out of the hole they have dug for themselves,’’ said Mr Tonra.
The problem for Italy and other countries is the conditions that may be placed on any package amid fears it will be again faced with a programme of austerity down the line, he said.
Chris Beauchamp, chief market analyst at online broker IG, European stocks struggled with the EU agreement in doubt.
"The failure of the EU to find a consensus on new aid for member states was taken in negative fashion earlier in the day, but even this hasn’t proved to be quite the problem that many might have expected,’’ he said, and market sentiment was proving, "remarkably durable of late".
While the ministers sparred over more economic aid, the ECB warned them that the EU may need fiscal measures worth up to €1.5 trillion this year to tackle the economic free-fall caused by the Covid-19 epidemic, officials told Reuters.
“Shame on you, shame on Europe. Stop this clownish show,” French Finance Minister Bruno Le Maire was quoted as telling the feuding finance ministers, according to one official who participated in the talks.
Meanwhile, the pandemic will lead to "a severe recession" in Germany with GDP slumping by 4.2% this year, but will rebound by 5.8% in 2021, according to the country’’s research institutes.
"This is the sharpest decline ever recorded in Germany since quarterly national accounts began in 1970; it is also more than twice as steep as the decline during the global financial crisis in the first quarter of 2009," said the Ifo institute.
It sees unemployment peaking at 5.9% this year.
However, the country will cope with the slump and has the resources "to enact far-reaching measures to cushion the short-term negative consequences for companies and private households."
"The downside risks associated with this forecast are considerable. For instance, the pandemic could abate much more slowly than anticipated.
"Efforts to restart the economy might also be less than successful and could trigger a new wave of infections,’’ the Ifo said.
