Thousands of people are losing their lives
to coronavirus in Europe and in order to contain the
spread of the diseases, countries have taken lockdown measures which have resulted in an
unprecedented economic slowdown throughout the continent.
To support member states on the front line of the crisis and to stimulate the economy,
the European Union has put forward an Economic Response Package.
The package has been described as a safety net of liquidity to protect countries,
companies and workers from the impact of the pandemic.
At a very early stage of the crisis, the European Commission took four steps.
The first one was to suspended the Stability and Growth Pact -the EU’s fiscal rules-
so that member states could invest beyond their expenditure ceiling,
and in spite of debt and deficit levels, to fight the COVID19 crisis.
The second was to relax the state aid rules
which are intended to preserve fair competition within the single market
to allow countries to support companies particularly affected by the pandemic
or to invest in strategic sectors such as the production of medical equipment.
Third, it channelled EU structural funds, used to fight regional inequalities,
and proposed to ease the transfer between priorities and regions
so that member states could make use of these funds in the coronavirus response
and this would create a pot of around 37 billion euros.
Fourth, it proposed to extend the scope of the European Solidarity Fund
so that it covers public health emergencies too, unlocking 800 million euros.
But in an unprecedented crisis, this is not nearly enough.
So the Eurogroup agreed on a 540 billion euro economic response package.
The main instrument in the EU’s package to counter the crisis
is the European Stability Mechanism or ESM.
This is the Eurozone’s rescue fund that was created during the financial crisis.
The ESM will make available a credit line under the name of Pandemic Crisis Support.
This will consist of around 240 billion euros in the form of soft loans for countries.
The ESM conditionality was the main bone of contention of the package
and blocked its approval for days,
as the Netherlands insisted on attaching stricter conditions for hard-hit countries, like Italy and Spain.
According to the final deal though, the credit line will be temporary but under the standard conditions.
The only requirement will be that member states requesting support
should commit to using this money only on COVID 19 crisis-related costs.
The second pillar of the strategy is the European Investment Bank.
The EIB will create a new corona fund worth 25 billion euros in the form of guarantees
to mobilise up to 200 billion euros in loans.
The fund is targeting the private sector and especially small and medium-sized companies.
The European Commission also put forward its new SURE initiative,
which stands for “Support to mitigate Unemployment Risks in an Emergency”.
It consists of a one hundred billion euros instrument worth, based on guarantees
provided by member states and the EU budget.
The aim is to give access to loans in favourable terms
to countries particularly affected by the pandemic
to help them finance temporary unemployment support schemes to keep people at work.
Along with the fiscal stimulus that the EU has been cooking up,
the European Central Bank has also intervened from the monetary flank.
From the 'whatever it takes' in 2012 to the 'extraordinary times require extraordinary action'
ECB head Christine Lagarde announced that the lender will launch a new corona-bond-buying program
worth 750 billion euros to buy public and private debt in the markets.
The European Commission estimates the economic impact of the coronavirus outbreak
for the EU’s economy could be even greater than the shock provoked by the financial crisis back in 2009.
At that time, the EU economy fell by 4,3%.
Sp Institutions and member states agreed that a recovery plan is needed to kick-start the economy.
However, what form that plan would have and how it will be financed
remain to be decided in the coming weeks by the EU leaders.
Nine countries, led by Italy, France and Spain, are demanding the establishment of an instrument
to issue joint debt to finance the recovery from the coronavirus pandemic:
the so-called “coronabonds”.
But this temporary Eurobonds continue to be a no-go for Germany, The Netherlands or Finland.
What seems to be clear though is that the next seven-year-long EU budget
will play a key role in the recovery plan.
The European Commission is expected to present an updated version
of the so-called Multiannual Financial Framework
that should provide the basis for recovery
while promoting the EU’s priorities.
Namely, fighting climate change, boosting the digital agenda and ensuring a resilient economy.
The budget needs to be agreed by the European Council and ensure the consent of the Parliament.
And even before the coronavirus crisis erupted, countries were already fighting over numbers
so the negotiation will definitely not be easy.
The COVID19 crisis is the most dramatic public health emergency Europe has seen in decades.
Its economic fallout would be unprecedented.
Whether this response would be enough to save the EU’s economy while protecting its people
is to be seen, and it is just a matter of time before we all find out.