Euro zone ministers to pledge lasting fiscal support for economy

By Jan Strupczewski

BRUSSELS (Reuters) - Euro zone finance ministers are likely to pledge lasting fiscal support to their economies on Friday to get them running again after the blow from the COVID-19 pandemic, a senior EU official said on Tuesday.

Ministers from the 19 countries sharing the euro will meet on Friday morning in Berlin, in person for the first time since February, for informal talks on the fiscal response to the pandemic that has savaged the European economy since March.

"There is broad agreement that now is not the time to withdraw the fiscal stimulus," the senior official taking part in the preparations for the meeting said.

"The discussion will be rather how to maintain it, in what form, how to shift it from short term emergency or liquidity measures, to more long-term investment activities," he said.

While the ministers will not pledge any additional money to the vast amounts already promised to keep the economy going, they are likely to make clear governments have no intention of any fiscal tightening any time soon and that they will keep their foot on the accelerator as long as needed.

European Union governments have already announced more than 3.7 trillion euros in various support measures to their economies since the pandemic started and the bloc has added another 1.3 trillion euros that could be tapped over time.

The 1.3 trillion includes a recovery package of 750 billion euros in grants and loans that the EU as a whole will borrow on financial markets and spend over the next three years to boost growth. The package is now going through the European Parliament and expected to be ready by Jan. 1.

In total, government support in various forms is almost 36% of EU gross domestic product, on top of unprecedented European Central Bank support measures. This is boosting European public debt levels, but growth is now the ministers' priority.

"A time will come when countries will need to gradually withdraw the fiscal stimulus and recreate buffers, but there is broad agreement now among ministers that now is not the time," the senior official said.

Ministers will also discuss way to help the recovery through deeper economic integration - pushing forward with stalled projects like the EU's banking union that still misses a common deposit guarantee scheme, or a capital markets union that would help EU companies get cash for operations from other sources than bank loans.

The European Commission expects the EU economy to shrink by an unprecedented 8.3% in 2020 after 1.5% growth in 2019 because of the economic disruption caused by the COVID-19 pandemic.

"We are starting from a much worse situation that at the start of the year and we really don't have the luxury to ignore any ways to improve the situation," the senior official said.

(Reporting by Jan Strupczewski; Editing by Angus MacSwan)