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Law360 (March 25, 2020, 2:51 PM EDT) -- Eurozone members have drastically increased fiscal relief measures to deal with COVID-19, which requires easing the European Union's strict deficit rules while demand, output and tax intake plummet throughout Europe, the group's president said in a letter released Wednesday.
Mário Centeno, the head of the euro currency group, reiterated that the EU's fiscal rules are being relaxed as a result of the novel coronavirus pandemic. The aggregate amount of discretionary fiscal measures among EU member countries has reached nearly 2% of gross domestic product for the euro area, he said.
The letter, dated Tuesday and addressed to European Council President Charles Michel, was published following a meeting of all EU finance ministers to discuss the response to the current health crisis. Centeno warned that the urgent containment measures — including widespread lockdowns that have already been announced across the EU — are having a far-reaching impact on both supply and demand in the economy.
The falling demand is not only hurting the economy, it has the effect of cutting tax revenue off at the knees just as government intervention is more necessary than ever, the letter said. Along with the increase in countries' discretionary fiscal measures, liquidity support schemes for companies and workers have been increased to more than 13% of the eurozone GDP since March 16, up from 10%, according to the letter.
"This is a clear increase in our fiscal response," Centeno said.
Financial assistance for struggling eurozone countries is available from the European Stability Mechanism fund, which can allocate cash to countries to counter serious economic disturbances, the letter said.
The measures to counter the economic shock could be adjusted, depending on how the pandemic develops, the letter said. Centeno also proposed that the eurozone finance ministers "deliver without delay and develop the necessary technical specifications" for adjusting relief measures before the end of next week.
"We also look forward to further proposals from the commission, based on EU budget resources, potentially including the creation of new instruments, and possibly supplemented by member states," Centeno said.
Eurozone countries "will continue work on the COVID-19 response and stand ready to follow up to any mandate given by leaders," he said.
A representative of the eurozone group told Law360 via e-mail that the group does not have specific data on how hard the current crisis will hit tax collections.
--Editing by Neil Cohen.
For a reprint of this article, please contact reprints@law360.com.
