EU predicts 'deeper recession'

Uncertainties remain

The European Commissioner for the Economy, Paolo Gentiloni, said on Tuesday that several uncertainties are still surrounding the summer forecast.

He said the assumptions about the pandemic could still be too optimistic, especially in the absence of a vaccine and treatment options for COVID-19. The labor market could also be affected worse than expected and companies could be hit hard by solvency problems.

Gentiloni, a former Italian prime minister, warned that failure to reach a trade deal between the EU and the United Kingdom could also negatively affect both sides.

"This is why it is so important to reach a swift agreement on the recovery plan proposed by the commission－to inject both new confidence and new financing into our economies at this critical time," he said, referring to the 1.85-trillion-euro ($2.08 trillion) recovery package put forward by the European Commission in late May.

The package, which includes 1.1 trillion euros from the EU's long-term budget and 750 billion euros to be raised from the financial market, will be a major subject when leaders of EU member states meet for a summit in Brussels over July 17-18.

Early efforts to reach a deal have failed. The so-called Frugal Four, comprising the Netherlands, Denmark, Sweden and Austria, want more loans and less grants.

The European Commissioner for Budget and Administration Johannes Hahn warned on Tuesday that "we will enter into difficulties" if EU leaders fail to reach an agreement next week.

Italian Prime Minister Giuseppe Conte on Tuesday urged that support measures in the recovery package be activated rapidly.

"We won't accept a weak compromise" on the recovery fund, Conte told reporters in Lisbon, Portugal.

"The response has to be a strong, ambitious political response," Conte said, according to EURACTIV.com.

Referring to the proposed recovery plan, Gentiloni said: "The rapid implementation ... built around 'Next Generation EU', which is not calculated in its effect in our forecast, would help to brighten the economic outlook, including by quickly delivering a boost to confidence."