Euro zone to discuss economic response as second COVID wave rages

BRUSSELS, Nov 2 (Reuters) - As a second wave of coronavirus infections rolls across Europe, forcing more and more countries into lockdowns of varying severity, euro zone finance ministers will on Tuesday discuss how to respond to the darkening economic outlook.

In July EU leaders agreed to launch a 1.8 trillion euro recovery plan that would help boost the economy over the next seven years from the unprecedented recession seen this year as a result of the pandemic. The bloc’s governments and the European Parliament are now haggling over the details.

“We are united and determined to use all our strength to face the second wave. Our first priority is to deploy the recovery plan as soon as possible,” the chairman of the euro zone ministers’ group Paschal Donohoe said.

The ministers will hold a video-conference two days before the European Commission issues economic forecasts for the whole 27-nation European Union that are likely to predict shrinking economic output in the last quarter of the year.

A senior euro zone official involved in preparations for the talks said that he expected a lively discussion on the response to the coronavirus, but that there were no plans to announce additional measures at the EU level for now.

The launch of the already agreed scheme, which is split into a 1.1 trillion regular long-term EU budget and a 750 billion euro recovery fund of grants and loans, is stuck in negotiations between the various capitals and Brussels.

Policymakers are now focusing on getting a deal on the package agreed between EU institutions as soon as possible. The bulk of the money is likely to start flowing to economies from the middle of next year until the end of 2023.

Officials said the mood among euro zone finance ministers was clearly in favour of keeping national fiscal support in place for now, especially as EU rules limiting the size of deficits and debt have been suspended because of the pandemic.

“Obviously, the fiscal impulse will have to stay next year,” the senior official said. “There is a very clear understanding that whenever we decide to withdraw fiscal support, there should be no cliff edge -- it should be gradual,” the official said.

The support will be needed because France, Germany, Belgium, Austria, Portugal and other countries have decided to tighten restrictions on people’s movement and closed non-essential businesses for the whole of November as the number of infections and hospitalisations of COVID-19 patients skyrockets.

“The re-tightening of measures will obviously have an impact on economic conditions,” the senior official said.

The ministers will also take stock of the 540 billion euro safety net for individuals, businesses and governments that euro zone governments set up in April.

The total comprises 100 billion euros in a part-time work scheme, 240 billion euros worth of ultra-cheap lending to governments, and 200 billion in liquidity support for companies. (Reporting by Jan Strupczewski; Editing by Hugh Lawson)