Institute, i am delighted to host a conversation today was the director general for economic and Financial Affairs at the european commission, he has been there since they were 2020. Our conversation today will be about the economy of the European Union and the European Union with a response to the covid19 crisis. We will also touch upon the European Union and commissions broader Economic Policy agenda as we hopefully recover from the crisis, its evolving fiscal institutions and its management of the european macroeconomy. So it should be an interesting conversation and obviously particular important given the worldwide economic crisis we have found ourselves in. Let me introduce i guess today, he is the director general for economic of Financial Affairs in the european commission, prior to his current job he was director general for structural reform support and will touch a little bit on while i imagine. And prior to that he was Deputy Director general for economic and Financial Affairs. He worked extensively on the funds which will talk about as well. Anyway with that introduction outoftheway mark, i wanted to start out by talking about the way in which the crisis has unfolded over the past two months in europe and what actions have been taken to deal with the crisis on the Public Health side and especially on the Economic Policy side of things to deal with the crisis or sent to beginning of the year january, february up until now and then after words we can get into the response and the outlook for the european economy. Please go ahead. Thank you very much for having me. And i suppose it is a good afternoon no, what is it in new york. Good morning its 9 00 a. M. Martin is in brussels. Let me indeed start by saying a few words on the economy and the response to that you response to it like i would say almost every other part of the globe, the new has been hit hard by the crisis and i think we were a bit ahead in many ways of the u. S. And towards the end of february we had lockdowns from early march onwards and clearly its had a major impact on the economy of that you and the Economic Outlook. So we have seen a major drop like elsewhere in production and services. And in particular in the end of the First Quarter in the second quarter. And in early may we came out with a spring forecast for this year where we projected a decline of the new economy of about 7. 5 which is far more severe than we have seen in the Global Financial crisis into be followed by relatively strong next year but even so we wouldnt his debate and incomplete recovery. Already at the time of the spring forecast we know the number of key downwards risks and we said look at the risks tilted towards the downside. And as a matter of fact, some of the risks we have seen materializing since then. For starters the external environment turns out worse than i expected in spring and you can see notably the emerging economy is strongly hit by the pandemic then we anticipated at that point in time but also very important during the lockdown. It lasted in the in longer than we had anticipated. So now based on scenario we expected a lockdown. Around six weeks which in reality was closer to eight weeks. Now on the point of the side and that brings me to the policy response that we have seen a new policy response which is stronger than we actually had anticipated at the time of spring. Let me say a few words on that. So compared to the Global Financial crisis, i think one can say the policy response and that you at all levels has been much faster and much fuller than we have seen before. And that started with the actions of the ecp but to be followed quickly and the bold actions of the level of the Member States. By now we have seen a discretionary fiscal measures how about 4 of gdp at the level of the Member States and they have also taken massive liquidity measures to the tune of more than 20 of gdp and these measures were very rapidly, limited the number of quick reactions at the level, in a few weeks time we reflected on our existing eu budget which freed up around 60 billion and the resources which can be used instantly for the crisis, we reached relatively quickly in agreement on a different use in the mechanism facility. And also a guarantee fund managed by the ib. This was done quickly and then i should mention one instrument that we have proposed ourselves, its a facility with Member States and their shortterm scheme, it was an instrument of the tune of 100 billion. We did relatively quickly and then im sure we will talk about that. That was before the commission put on the table the proposals for Recovery Plan for europe. So all in all before we go down that route, i wanted to go back to something that you said about fiscal policy which have been significant, not quite at large as here in the u. S. But the same order basically but they are normally of course Member States of the European Union are restrained them what theyre allowed to do on fiscal policy side of things under the civilian throwback rules. Can you talk a little bit about how those roles have been adjusted for the crisis because i think here in the u. S. A lot of states for example have budget requirements and they dont how much leeway with the crisis of all and they have mandated within the state and the states dont have the leeway at all and within the European Union they normally in the extraordinary moments, the usual rules and as i mentioned on the physical policy but also the legality of state aid and restrictions on Free Movement that normally would not fly. Can you talk about the outside of the policy response. Which basically is a deregulation. Thanks for bringing it up id be happy to do so. Let me first before i go there to make one point with automatic stabilizers in the io are bigger. I think if you would add up the two the difference will be but youre absolutely right, under normal circumstances, members would not be allowed to support their enterprises in the state aid regime and given the severity of the situation in the emergency that we have very quickly on a temporary basis our state aid rules and we have increased the possibility for the states to provide and it has been very important and for an example to provide support in the form of the shortterm scheme switching away has sold and see support to corporate and has a very mitigating impact unemployment numbers and allowed for liquidity facilities that i just mentioned. Which helps corporate survival over the period. Similarly we have in the rules in place that constrain members and their fiscal policy and on the state level but nevertheless there is a constraint. And we have triggered something that is a general escape clause which is actually meant for situations like thi this, if we are in a generalized economic and severe downturn than the council in the proposal and the commission can decide that there has been a part of these rules which means they are freed in terms of responding to the situation. That is where we have been over the past two months, you mentioned briefly your look for cdc shop tour in the of what were seen around the world and i think another 2021 rebound, there will be some of that and thats more in certain thin issues development. I wanted to ask you if you can give us the Macro Economic situation as it is now, union wide, one big difference with the u. S. Is on employment is significantly lower than it is in the u. S. Because of labor market institutions that maybe European Countries have that the u. S. Does not really have, i think it really is a key difference between the two economies and im also wondering if you could go into a little more detail and its still early to know where things are going to go and you can talk about the situation in spain and italy that were hit hard at first and tell us about the situation in sweden which received a lot of attention in the u. S. Because exclusive approach to lockdowns and the public is great again maybe its too early to issue a verdict on how that worked out but i was wondering, a little bit about labor markets and then about those three countries. , a few points on this, you are right that the impact so far on the labor market have been rather benign, its only compared to the u. S. But more generally and if you consider the drop off of gdp or productio production, there are a number of explanations for that and one i alluded to was work schemes which existed already and quite a few number of states but in the crisis new ones have been created and now its becoming a dominant model in the eu, also a number of statistical issues and regulatory issues that play into this. In order to be employed you need to be available for the labor market which is a problem in a lockdown situation so they have to put up a distortion probably coming from their and a number of countries i think have introduced a moratorium on the force job losses and so if you look at the number that is in the hours work, clearly you see a much bigger impact than if you look. The one and people unemployed in the u. S. Are equal. In many cases they would not be an employee. You need to take that into account. Clearly a policy choice thats been made here which i think in a different policy choice is being made in the u. S. Is to maintain as much as possible between the people and their company or institution where they work. Having said all of this, we would expect unemployment to go up as we go along and we would anticipate a bit of a delayed effect but not to the extent that we have seen unemployment in the u. S. Also on the shortterm we are coming out tomorrow with the new forecast, i cannot tell you what that will be in explaining the risks that it has materialized and you can deduct from that. And we will not be surprised with this forecast and as a matter of fact, most institutions that have come after with what wall street has been. Turning to spain and italy, spain and italy, they have been particular hardhit by the crisis and by the pandemic, this is partially by luck but also to a large extent something to do with the economy and with a large part of tourism which is clearly sectors by the pandemic and the spring forecast we anticipated a drop in gdp of bigger then 9 for both countries and again, im afraid that we will not be surprised, clearly with very big impact resulting in the big impact on the government of which we see across the board in the deo but given the size of the job of gdp in spain and italy, it is more pronounced their then elsewhere. That said, it is true for all countries and also for them and, in most of the measures that they have taken, they are oneoff and we would expect with the return to growth that also we would expect the fiscal position to improve very quickly, which are left with is an increase in clearly which is considering the levels. And is clearly not good news paper. How does the transition back into its fiscal rules, how does that work, there is a shock. Is there a timeline for when the strengths start to comply with their full force or is that unclear in the whole process. No timeline has been fixed for that and also for very good reason because at this point in time you will recognize that the situation in the u. S. , there is an extremely high level of uncertainty and that is linked to the trajectory of the virus, so we seem to be on her way out which things look definitely much better today than six weeks ago. But sadly the virus is still around so one cannot rule out the reemergence of the virus which can lead to a reimposition of lockdown majors or reimposition, as long given the fact that this insurgency of the recovery is so big, it will also be very difficult for us to make recommendations on what will be the fiscal trajectory in the current circumstances. The commissioner has decided to wait a bit longer to see what the developments will look like, at the same time, what is also very clear, given the shock to the system and the fact that next year and spain and italy also, the years thereafter, we will still be below the 290 levels in that suggest it may not be the best time to cause disparity. So from the commission side we have seen a continued need for fiscal support in the time to come but in a way and taken into account clearly the outlook at that point in time. And last point i want to emphasize again, given the fact that most of the majors are actually temporary, we will have an away an automatic reversal of fiscal policy simply if members do not extend these temporary measures. How old are you. I had a brief interruption on my internet connection. As we go through on a conversation, perhaps we have time for a stimulus question for the district of columbia. It is worse every day. So before we go through the discussion about the recovery, did you talk about sweden . I did not. I missed a few seconds. Lets go there and then to the recovery. What can i say, sweden chose a slightly different approach than some of the others states even though one should also state it is not black and white. I think also i would say the geographical circumstances, you cannot compare that to the geographical circumstances. You need to take the differences into account and in reality that has been different in the approach between all members pending in the severity of the pandemic but the overall impression is that sweden has followed the approach than some of the others and now, i think it would not be for me, one can see but i need to be a bit careful. And it looks very specifically at the numbers but the number seems to be higher in sweden than in the neighboring countries which has contracted the discussion. I think it is too soon to tell to see how that will play out in the end, some of the neighboring countries have been able to relax, they were more severe and able to relax a bit that its a bit longer that has helped them in the initial Economic Impact which has been mild in sweden compared to other countries. And at the same time one can only pass judgment on that. At the end of the day it all cost are being counted and i think its too early for that. You mentioned external risk in your assessment of the Economic Outlook for that you and obviously the u. S. Is on a different trajectory in terms of the spread of the disease. Is that something that feeds into your concern as well that the u. S. Will not recover as fast as people were hoping three months ago . We can see the us was falling behind so we have captured quite a bit of that already in our spring forecast. Clearly if the us would follow a completely different trajectory than europe and china so far, then that would be bad news for the world economy. Now lets go from the Current Situation really to the future. The first thing i want to talk about obviously is the proposed Recovery Fund that would be financed in some way or another through the issuance of debt at the union as a wholeis responsible for. Its been represented really as a watershed moment in some of the press coverage in the us but its of course also encounter a lot of opposition within the European Union from the socalled frugal four in which our shared homeland of the netherlands is one. Can you talk about what the proposal is and give us a sense of the size and where you think that process is going and the understanding that obviously political needs can shift. What the commission had proposed and has asked for is essentially an authorization to blow off the b,750 billion and to use that for essentially two channel 500 billion of that to eu Expenditure Programs and to channel another 250 billion of that into the facility for Member States. Now, that is in many respects a novel proposal and just to make one thing clear, its not the case that its new for the eu tomorrow. Were doing that on a regular basis. But what is new is that we borrow to spend rid of that is something that has not been done before, normally if we borrow, then we lend it back to back to Member States for some purpose. So i think this is the key, not so much the issuance itself but the channeling of these resources through Expenditure Programs. Now, the bulk of this money. So youre saying there are mechanisms. But even darling against the eu budget we have done before but what is new is the size. That is important, 750 billion is about five times theannual budget of the eu. Yes, so its, yes. So it is massive in terms of size. And so its about five percent of pdp which is a lot nationally. And so its this size and its the fact that we incur debt at the union level to pay for expenditures and now, to be precise what we want to do with this money is mostly to use this to fund investments. And the central, its not the only program but the Central Program in this is in resilience facilities which would provide 310 billion in investment grants and 250 billion in investment loans to Member States to finance programs of reforms and investment and this is what youre trying to do. We are trying to four combinations of reports and investments that first of all help us to speed up the recovery. Thats very important. But also to transform the structure of the economy and to make the economy greener. Smarter as we say, to appear more digitalized and also resilient. Now, why is this package, will this package go forward and i think one very important reason for this is that we saw that and in a way you touched on it by pointing to italy and spain. But even though this crisis is almost by definition of a symmetric nature, the implications are not symmetric at all. So some countries are hit harder than other countries. And the sad reality is actually that a number of the countries that are hit the hardest are also the countries are the least resilient to these shocks so we believe that we need something at the central level whether it be big, to make sure that these divergence are already there before the p