LDN - Business

Euro zone upbeat about recovery but wary of lagging behind China, U.S.

[May 21, 2021]

By Michael Nienaber

LISBON (Reuters) - Euro zone finance ministers were upbeat on Friday about the prospects of economic recovery from the pandemic-induced slump, but said Europe would have to work hard to avoid long-term economic damage and not to fall behind China and the United States.

"Things are looking very good in Europe ... investment is rising and the growth forecasts are really well oriented," French Finance Minister Bruno le Maire said on entering the ministerial meeting. "Everywhere in Europe growth is back."

European Commission forecasts show the 27-nation EU will reach pre-pandemic growth levels around the middle of 2022, with some, like Germany and France already there at the end of this year and others, like Italy or Spain only at the end of 2022.

But China and the United States will rebound more quickly, forecasts show, and the euro zone will have to act soon to boost its growth potential if it is to stay among the top performers, the French finance minister said.

"Do we want to play in the first league, or do we want to lag behind China and U.S.?" le Maire said.

"We need more activity, more investment in new technologies. We have to improve the growth potential of Europe. Coming back to normal is not the right ambition. This is from a historic point of view the key decision that we will have to take over the next months," he said.

The European Commission will assess over the next months reform and investment plans by EU governments aimed at making their economies more green and digitalised.

These schemes will be the basis for payouts of cheap loans and grants from the EU's 750 billion euro ($917 billion) recovery fund, with first disbursements expected towards the end of July.

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French Economy Minister Bruno Le Maire and German Finance Minister Olaf Scholz hold a news conference after a Euro zone finance ministers meeting in Brussels, Belgium November 19, 2018. REUTERS/Eric Vidal/File Photo

The unprecedented joint borrowing exercise will help growth, German Finance Minister Olaf Scholz said, praising it as a historic venture that will make the bloc stronger and bring it close to a fiscal union that markets have long been pushing for.

"Even when the crisis is over, we will see that we have made a big step towards a fiscal union, which will make us stronger to fight crises," he said on entering the talks. "Europe will come out of this crisis better than it was before," he said.

But apart from the optimism, there was also a note of concern among the ministers that the pandemic, which plunged the bloc into its deepest ever recession last year, might damage future growth prospects unless addressed.

The euro zone experienced this kind of long-term "scarring" in the wake of the financial crisis a decade ago which had negative long-term effects on investment and in some countries more than others.

"We are very conscious of challenges that many Europeans face at the moment, very conscious of the scars and the risks of the damage, and we will do our best to overcome those," the chairman of the ministers Paschal Donohoe said.

($1 = 0.8180 euros)

(Writing by Jan Strupczewski; Editing by Hugh Lawson)

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