This week we’re further analyzing the frenetic policymakers’ response to coronavirus in Europe. We’re featuring comments from Emma Navarro, Vice-President of the European Investment Bank, and Jonás Fernández, Member of the European Parliament and economic spokesperson of the Socialists & Democrats. We’re also covering a freshly published paper by Funcas analyst Miguel Carrión on the role the ECB is playing in this crisis.
As usual, see below our recommended readings of the week.
Europe/COVID-19 Draghi’s blunt words on what’s at stake
Mario Draghi, perhaps the most influential European policymaker of the last decade and arguably the euro’s savior, has called for a bold and fast response to the coronavirus crisis in an article in Financial Times. Worth quoting some of his words for grasping the exceptionally dangerous times we are living:
“Faced with unforeseen circumstances, a change of mindset is as necessary in this crisis as it would be in times of war. The shock we are facing is not cyclical. The loss of income is not the fault of any of those who suffer from it. The cost of hesitation may be irreversible. The memory of the sufferings of Europeans in the 1920s is enough of a cautionary tale.”
G20/Coronavirus G-20’s whatever-it-takes promise and talks on Marshall plan
The G-20 has concluded a leaders’ virtual meeting with strong and ambitious words: “We commit to do whatever it takes and to use all available policy tools to minimize the economic and social damage from the pandemic, restore global growth, maintain market stability, and strengthen resilience.”
We’ve also seen in the last few days the Spanish government calling for a Marshall plan to boost the European economy once the sanitary crisis is stabilized. The idea has not been fully developed yet but has been endorsed by President von der Leyen. “We need a [seven year] new budget that can help the economy rebound”, says von der Leyen. Before the coronavirus crisis, the EU leaders were in the process to agree on a new Multiannual Financial Framework for 2021-2027.
EIB/Coronavirus The European Investment Bank is ready to help
“The EU must react strongly and united, and use all available tools to mitigate the impact. We need to ensure support for citizens and companies throughout Europe, so that they can get right back on track after the pandemic”, says Emma Navarro.
On top of the actions we’ve seen in the last days such as the ECB’s €750 billion purchase program and the Commission’s move to freeze the Stability and Growth Pact, Navarro thinks “a coordinated and mutualized response is of the essence to increase effectiveness and show citizens that Europe is ready to act when it matters most”.
The European Investment Bank is ready to play its role, explains Navarro. “In cooperation with the Commission, we have put forward an immediate support program to unlock up to €40bn of funding to address the most pressing needs of SMEs and mid-caps. We are also making additional €5bn of EIB financing available for critical health investments and R&D to find treatment and vaccines for coronavirus. This is just a first response”, explains Navarro.
“The challenge ahead requires greater efforts. The EIB has proposed the creation of a pan-European guarantee fund of €25bn that could mobilize €200bn to support European SMEs and mid-caps, sharing the burden of this crisis across all Member States.”
EU/Coronavirus No coronabonds yet?
The idea of some kind of coronabonds seems to be gaining momentum, yet EU leaders have not agreed on them yet. The six hours long virtual European summit held on Thursday saw a Northern-Southern divide mirroring the paralyzing dynamics of the euro crisis.
Nine Eurozone countries had sent a letter ahead of the summit asking for a common debt instrument.
“We need to work on a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all Member States, thus ensuring stable long-term financing for the policies required to counter the damages caused by this pandemic,” says the letter signed by the leaders of Belgium, France, Italy, Luxembourg, Spain, Portugal, Greece, Slovenia and Ireland – all members of the euro area.
“Extraordinary situations call for equally extraordinary responses… We need to work on a common debt mechanism”, said the European Parliament President David Sassoli. “It´s not only about solidarity. Sadly, all Member States are suffering or will suffer. What’s at stake is the survival of the European project”, explains Jonás Fernández.
“The economy has been abruptly forced to start some kind of hibernation. We need to make sure our businesses in Europe and their employees survive this challenging time”, says Fernández. “The actions of the ECB help in this regard but let's face it: when the economy is taken out of the freezer some European countries will have sky-high levels of public debt. They can't be left alone. If we don't have a mechanism to issue common debt, millions of Europeans will see their future in jeopardy.”
The European Council has instructed the Eurogroup to come back with a proposal in two weeks’ time.
ECB/Coronavirus How’s the ECB handling this crisis?
“Despite an initial expansion of its asset purchase programmes, Christine Lagarde did miscommunicate initially on the ECB's commitment to preventing the national fragmentation of the Eurozone's government bond markets, but the ECB repaired this by announcing a further expansion of asset purchases in an extraordinary off-schedule executive board meeting”, says Miguel Carrión.
“The ECB has provided substantive liquidity and supervisory-capital relief to banks. But the central bank cannot force banks to lend to the real economy, or to exercise forbearance on existing loans. Banks may still conclude that some or most firms will not be able to survive the coronavirus lockdown. Therefore, loan deferrals, let alone new bridging loans, may remain too risky for banks even taking into account regulatory capital relief. This means governments may well have to step in.”
Access here Miguel Carrion’s article on the ECB’s response to COVID-19 crisis.
As we are seeing more and more the idea of coronabonds on the agenda, this article gives good insights on how this idea should develop. “The Eurozone needs mutualized spending more than it needs mutualized borrowing”, says Martin Sandbu.
“The EU got it wrong in the financial crisis – and paid a heavy price. But this time could be different”, argues José Ignacio Torreblanca, Head of ECFR Madrid’s office.
This article uses a survey conducted before the COVID-19 outbreak to understand EU citizens’ attitudes towards a joint solidarity programme. It suggests considerable support already exists for an effective policy framework centralising the procurement, stockpiling, and allocation of medicines.
Stay safe and please apply social corona responsibility.
