The outbreak of the coronavirus is testing European solidarity as never before in EU’s history.
While the member states are mainly fighting the virus on their own, caring for their own citizens as is there duty, they will have to demonstrate more solidarity after the crisis to restore the economy to normality and avoid a prolonged economic crisis which will affect every one of them.
The outbreak poses the risk of a serious downturn affecting the whole economy of the EU, hitting businesses, jobs and households. The GDP in the EU is forecasted to decrease significantly during 2020 and even next year. The European Commission has been busy during the crisis approving temporary state aid measures to support the economy of the member states.
It has also proposed a temporary relaxation of spending rules for the European structural and investments funds (ESI) in order to help member states in mitigating the effects of the outbreak. The proposal is currently being discussed by the European Parliament and the Council and is expected to be finalised in the coming weeks.
The European Court of Auditors (ECA) is also doing its work during the crisis although we will have to wait until after the crisis for a performance audit of the Commission’s preparedness and coordination of the measures to contain the outbreak. Yesterday (15 April), ECA issued an opinion at the request of the parliament and the council.
The new rules are proposed to transfer ESI funds faster to the member states and give them greater flexibility to target EU support where it is most needed. For example, this would allow member states to request 100 % EU funding without putting up their own co-financing or needing to devote a fixed share to key topics such as research or climate.
“This short-term reaction proposed by the Commission is necessary to support member States in mitigating the crisis effects, but the right balance should be set and this proposal should not lead to substantial compromises in terms of accountability,” said Iliana Ivanova, the ECA Member responsible for the opinion.
The auditors note that the proposal does not provide additional clarification on the intended nature of operations for fostering crisis response capacities. They also highlight that reliable information about ESI fund spending in response to the COVID-19 outbreak would not be readily available to the Commission or the legislators, potentially affecting accountability to EU citizens for the use of funds.
Safety nets during the crisis
But the main support during and after the crisis will have to come from three security nets set up by the Commission and the Eurogroup members. Last week, after long hours of negotiations, the Eurogroup managed to agree on what is needed during the crisis and outlined a recovery plan for the period after the corona crisis.
In his remarks following the Eurogroup videoconference (9 April), Mario Centeno, the president of the group and the finance minister of Portugal, made a passionate call for European solidarity. Non-euro-area finance ministers participated also in the conference to identify on a comprehensive economic policy response to the COVID19 outbreak.
“This response contains bold and ambitious proposals that would have been unthinkable just a few weeks ago. We can all remember the response to the financial crisis of the last decade when Europe did too little, too late. This time around, it is different.”
“Going into the crisis, our nations’ capacity to respond was different, we are not all at the same level, despite all the flexibility. It can become much worse on the way out of the crisis. That is why solidarity is key, if we are to stop deep fragmentation in the euro area.”
The first safety net is the creation of a temporary European instrument (SURE) to support national short-term employment schemes for laid off employees in the member states. This will channel up to €100 billion to the national systems facing the greatest pressures. The initiative will now be taken forward and fine-tuned in the legislative process.
The second safety net is for businesses facing difficulties, in particular SMEs. “Some national schemes are more advanced than others and are backed by greater financial firepower. Our single market needs a level playing field and Leaders asked us to see how to scale up the actions of the European Investment Bank (EIB),” Centeno said.
The EIB initiative will create a “pan-European shield” which aims to guarantee €200 billion of lending with a focus on small and medium-sized enterprises. “Again, this scheme is based on our collective financial strength at the national and European levels. Because we are stronger together.”
The third safety net is for member states. The Eurogroup agreed to establish “Pandemic Crisis Support” for the amount of 2% of member states’ GDP or close to €240 billion. It will be available to all Eurogroup members, with standardised terms, to support domestic financing of direct and indirect healthcare, cure and prevention related costs due to the COVID 19.
For non-euro countries, the Eurogroup recalled briefly that the EU has a solution in its toolkit. This is the Balance of Payments Facility, which is available in case of need and can provide financial support to member states that have not adopted the euro. ”It should be applied in a way which duly takes into account the special circumstances of the current crisis.”
Recovery fund after the crisis
Altogether the three security nets add up to around half a trillion euros. But apparently it is not enough. “When the health crisis abates, we will need to spur economic recovery. “It is imperative that we grow together, and not apart, and that we protect the internal market in doing so.”
The Eurogroup agreed to work on a “Recovery Fund, which would turbo-charge the European investments that we will need to build a better, greener, more resilient and more digital economy.”
Centeno explained that the fund would be temporary, targeted, and commensurate with the extraordinary costs of the current crisis and help spread them over time through appropriate financing.
Subject to guidance from EU leaders, discussions on legal, practical and financial aspects will prepare the ground for a decision. According to Centeno, some member states expressed the view that this should be achieved via common debt issuance; other member states said that alternative ways should be found.
Apparently, the debate is not yet mature and further guidance is expected from the European Council next week. Where the Commission stands in this is not clear. It is preparing a revised multi-annual financial framework (MFF,) EU’s long-term budget for 2021 – 2027, where a “recovery fund” could be integrated.
Within the Eurogroup itself, only a French proposal of a recovery fund, based on common debt issuance, was tabled. A group of 9 countries have reportedly signed a letter defending the corona bond idea. Other countries, the “Frugal” ones, still object to the idea but might rise to the challenge and show more European solidarity after the crisis.
The Brussels Times