EU suspends budget rules for first time 

The European Commission is suspending its strict rules on public deficits to allow governments to open the money taps to battle the coronavirus pandemic.

In an unprecedented decision, Brussels triggered the “general escape clause”, giving countries free rein to “inject spending into the economy as needed”, said EU chief Ursula von der Leyen.

The temporary measure effectively halts strict oversight by Brussels of national spending and will be welcome in Italy – the country suffering most from the coronavirus outbreak and one that is in breach of EU rules.

EU finance ministers are expected to formally approve the clause next week. The derogation is only allowed in cases of “an unusual event outside the control” of a member state.

Italy has announced a €25bn spending bonanza, with fellow debt-rule breakers France and Belgium following suit with their own massive spending sprees.

The escape clause was created in 2011 in the height of a debt crisis, when the rules on debt and deficits were tightened in an effort to preserve the single currency bloc from further shocks.

Known as the stability and growth pact, the rules theoretically limit a country’s deficit to 3pc of annual output and debt to 60pc – a number that Italy has more than doubled in recent years.

An EU spokeswoman said that triggering the escape clause will allow countries to spend without limit on medical equipment, enforcing containment measures and on expanding hospitals.

Once approved, the measure will be the biggest collective gesture so far by governments, but still a far cry from the effort from the European Central Bank, which has announced €750bn in monetary stimulus to reassure the markets and freed up banks to lend an extra €1.8 trillion.

Italy, France and Spain have been blocked in their efforts to persuade their European partners to jointly borrow on the markets to spend on anti-virus measures.

The idea of mutualised debt is politically difficult in Germany, the eurozone’s economic powerhouse, and the Netherlands.

Northern Europeans have a deep distrust of binding their fate to big debtors such as Greece or Italy, and the thought of a so-called “eurobond” has been a non-starter for decades.

“It’s a discussion that has yet to move forward I fear,” the EU’s economic affairs commissioner Paolo Gentiloni said. “I can’t stress enough that the evolution of this pandemic … will demand that we break new ground” on financial policy, he added.