During an extraordinary plenary session on March 26, the European Parliament adopted three urgent proposals to respond to COVID-19. These three proposals were: the Coronavirus Response Investment Initiative (CRII), the extension of the EU Solidarity Fund and the temporary suspension of EU rules on airport slots. Given the urgency of the situation, the measures were voted on in Parliament less than two weeks after the Commission’s proposal, and CRII was swiftly adopted by the Council to enter into force in April.
CRII was among the first measures voted by the EU to assist EU citizens and member states. It mobilises €8bn in unused structural funds, supplemented with €29bn of cohesion funding across the EU to allow for up to €37bn to be redirected towards Coronavirus-related expenditure. The CRII will provide liquidity for at least 100,000 small businesses hit by the pandemic crisis through special guarantees and incentives through the European Investment Fund.
Thanks to CRII, member states could immediately address three key priorities in the fight against the economic consequences caused by COVID-19: spending on healthcare, support to short time work schemes, and support to SMEs.
Extending the EUSF to apply beyond natural disasters to combating the COVID-19 pandemic was another measure the EU put in place in record time. Operations eligible under the Fund have been extended to include support in a major public health emergency, including medical assistance, as well as measures to prevent, monitor or control the spread of diseases. For this year, the fund has €800m at its disposal to provide financial aid to the EU countries worst affected by the pandemic. Italy was the first member state to submit an application for financial support from the EU Solidarity Fund. Support will be decided on a case-by-case basis.
Flexibility is key in the fight against COVID-19. On March 19, the Commission adopted a temporary State Aid framework, to allow member states to implement liquidity measures to support affected businesses and sectors. The temporary framework allows member states to use the full flexibility allowed under State Aid rules, in order to swiftly aid distressed economic sectors. The temporary framework will be in place until the end of this year.
Another example of added flexibility is in the budgetary rules: to enable member states to adopt discretionary fiscal measures to support families and workers, the general escape clause of the Stability and Growth Pact was activated for the first time since its inception in 2011, pausing member states’ requirement to reach their fiscal targets under EU budgetary rules. This allows member states to adopt ‘timely, temporary and targeted’ initiatives to address the socio-economic effects of COVID-19.
A new instrument – Support to mitigate Unemployment Risks in an Emergency – was adopted by the EU Council in May. This is a temporary scheme which can provide up to €100bn of loans under favourable terms to member states to help finance the sudden and severe increases of national public expenditure as from February 1, 2020. While providing assistance to member states to preserve employment, SURE also supports short-time work schemes and similar measures to help member states protect jobs. The full SURE factsheet is available here.
Worth €750bn, Next Generation EU is the recovery instrument presented by European Commission President Ursula von der Leyen on May 27 in the European Parliament. The recovery instrument would use joint debt incurred by the 27 member states. President von der Leyen said the plan would provide €500 billion in grants to countries hit hardest by the pandemic, and make another €250 billion available as loans. This new recovery instrument is an addition to the proposed long-term budget of €1.1tn and would be rolled out in three pillars. The first is supporting member states to recover, repair and emerge stronger from the crisis. The second is kick-starting the economy and mobilising private investment. And the third pillar is learning the lessons of the crisis and addressing Europe’s strategic challenges.
The European Investment Bank created a pan-European guarantee fund of €25bn, which could support €200bn of financing for companies – with a focus on SMEs. This was agreed by the EIB board of directors on May 26, and endorsed by the European Council on April 23 as part of the overall EU COVID-19 response package. EU member states have been invited to contribute to this fund – and the fund will become operational as soon as member states (accounting for at least 60 per cent of EIB capital) have signed their contribution and a contributors committee has been set up. The fund will initially approve operations until the end of 2021, but this period can be extended by the member states. The fund came on top of the €40bn to fight crisis the EIB Group had already announced.
On April 9, the euro area finance ministers (Eurogroup) agreed on a comprehensive economic policy response to the pandemic. This policy consists of three safety nets for workers, businesses and sovereigns, amounting to a €540bn package including the above-mentioned SURE and the pan-European Guarantee Fund for loans to companies by the EIB. The ESM – set up after the financial crisis – comes to member states’ support with direct and indirect financing of health-related costs through its Pandemic Crisis Support. This credit line will be available to all eurozone member states to a level of two per cent of their respective GDP (at December 2019). Should all 19 euro area countries draw from the credit line, this would amount to a combined volume of around €240bn in loans. The terms are favourable: near-zero interest and long maturities of 10 years, with the only condition that the funds should cover direct and indirect COVID-19 healthcare, cure and prevention-related costs. It is up to the individual member states to decide whether to apply for it or not, and even if they do, funds do not have to be drawn. The agreement was endorsed by the European Council on April 23 and the credit line was made operational by the ESM board of governors on May 15. It will be available until the end of 2022.
The European Central Bank has agreed on a set of monetary policy and banking supervision measures to mitigate the impact of COVID-19 on European citizens and the euro area economy.
Specifically, the ECB has: increased its’ Pandemic Emergency Purchase Programme (PEPP) with €600bn to a total of €1,350bn to lower borrowing costs and increase lending in the euro area; kept key interest rates at low levels; increased the amount of money banks can borrow from the ECB; made it easier for them to borrow in order to give loans to those hardest-hit by the spread of the virus, including small and medium-sized firms; offered immediate borrowing options at favourable rates to banks; increased banks’ lending capacity; and reactivated swap lines and enhanced existing ones with central banks around the world, to ensure that the increased demand for foreign currencies is met.
In the current context of fiscal flexibility in the EU, individual member states are committing to provide support to households and sectors facing disruptions and liquidity shortages. On Monday, June 8, the Maltese government announced various measures, forming part of a €900m package entitled ‘A Better Tomorrow’, including cash vouchers, cheaper fuel, lower tax on property sales, improved in-work benefits and other incentives for businesses.
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