EU Central Bank Chief Warns of 'Dramatic' Post-COVID Recession, Calls to Agree on Recovery Plan

© AP PhotoEurozone Plunges into Deflation
Eurozone Plunges into Deflation - Sputnik International
Christine Lagarde has appealed to the bloc's members to accept a recovery plan as quickly as possible, despite it being a highly contentious issue throughout the coronavirus pandemic.

The head of the European Central Bank Christine Lagarde warned EU members on Friday they were heading for "a dramatic fall" due to the sweeping coronavirus-induced lockdown, urging them to waste no more time and agree on a proposed stimulus plan, due to be finalised in July. Dutch Prime Minister Mark Rutte responded, however, saying he doubted that the deadline would be met.

"It is uncertain whether it would be finalised then or whether we would need more sessions, and whether they should be during the summer or later," said Rutte, whose country is one of the so-called "frugal four" that are seeking to block the spending for the European countries that have suffered most throughout the COVID crunch.

Lagarde pointed out that the full detrimental effects of the crisis are yet to be felt in the bloc, which has of late seen multiple spats over the divisive stimulus effort and now has to restore public confidence buffeted by the rows.

Speaking during a video conference, she warned that Europe’s worst recession since World War II would see the region’s labour market crash, with unemployment rates going from 7.3% to 10%, Lagarde pointed out.

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Calling on members to reach a common ground on the possible ways out of the recession, Lagarde told the summit that financial markets were relatively calm because of expectations that their further steps would show "the EU is back", Reuters reported, citing insiders.

"It’s a crisis without precedent that has had an enormous impact - economic, social and also on the viability of the EU", said a senior European diplomat, arguing that to show that "Europe protects", there is no way they "can take any longer on this", as delays would only complicate things and make them "more expensive".

Contentious Recovery Plan

The stumbling block in the EU’s negotiations is the 2021-27 budget of about 1.1 trillion euros, as well as a proposal by the European Commission to borrow 750 billion euros from the market to help revive the economies hardest hit by the coronavirus, notably Italy and Spain.

The suggestion landed in some countries’ crosshairs, like the Netherlands for instance, with states arguing it would be an additional financial burden that would hardly pay off. Even before the pandemic there was a standoff between northern countries and a high-debt "Club Med" group of southerners over the bloc’s long-term budget.

Now, the two groups are divided on how the stimulus plan should work. The EU Commission suggested it should be split in two parts - two-thirds should account for grants and one-third - for loans. The Netherlands, Denmark, Sweden, and Austria - the "Frugal Four" - say the fund is too big and should only come in the form of loans, since grants would have to be repaid from EU taxpayers’ pockets.

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