Europe’s largest economies have started to count the cost of the growing coronavirus crisis – as continent’s leaders struggle to reach agreement on how to lessen its impact.
The French central bank said it had entered a recession with an estimated GDP contraction of 6% in the first quarter of the year, while forecasts also predicted a serious slowdown for Germany.
But a 16-hour meeting between European leaders that spread out over the night Wednesday morning failed to reach agreement on how to help the eurozone cope with the damage.
The Banque de France’s estimate of the extent of the recession over the January-March period comes after the economy contracted 0.1% in the fourth quarter of 2019 – and two consecutive quarters of decline meet the definition of ‘a recession.
France has been locked since March 17 and the central bank estimates that every two weeks under home stay orders could reduce annual economic activity by 1.5 percentage points.
Meanwhile, Germany, Europe’s largest economy, is forecast to shrink 4.2% this year, according to a report by the country’s leading forecasters.
Still, the stalemate persists between European leaders on how to save households and businesses across the continent from bankruptcy.
A videoconference meeting between 19 finance ministers from the eurozone broke off due to differences over aid conditions and a proposal to issue joint bonds to pay for the crisis.
Talks were scheduled to resume on Thursday.
On the table, a package of 500 billion euros, partly made up of 240 billion euros of emergency loans from the existing European Stability Mechanism (ESM).
But Italy, which was the epicenter of the crisis in Europe, has rejected the use of MES.
Indeed, it is accompanied by conditions for carrying out economic reforms – raising the specter of the severe austerity imposed on Greece during the eurozone debt crisis almost a decade ago.
Italy says it makes MES the wrong tool to deal with the fallout from the coronavirus crisis, as it is not the fault of any country
Germany has offered to lift most of the conditions on the money, but the Netherlands has lobbied to demand promises of reform.
German Finance Minister Olaf Scholz said countries were close to a rescue loan agreement and other parts of the package – covering credit guarantees to keep businesses afloat and support to help companies to avoid layoffs.
He said that the position of Germany and other countries was that loans should have minimum terms and “should not mean that, as happened 10 years ago, commissioners or a troika go to the countries and develop a long-term program ”.
Italy, supported by France, Spain and six other countries, had pushed to go even further than the use of the MES and to rely on a shared bond issue supported by all countries to raise funds for low interest rates and favorable conditions such as a long repayment.
But Germany and the Netherlands have resisted joint borrowing.