The EU´s Economic Response to the Covid-19 crisis: The Triple Safety Net
The coronavirus represents a major challenge for the European Union and its member states, severely weakened by the pandemic. But how has Europe reacted to mitigate the socio-economic impact of the outbreak? This was the main debate during the webinar hosted this week under the aegis of the IE School of Global and Public Affairs Transatlantic Relations Initiative and the Observatory on the European Union.
Paz Guzmán, economic advisor at the European Commission in Spain, and Miguel Otero, Senior Analyst at the Elcano Royal Institute and Professor of International Political Economy at IE School of Global and Public Affairs, led the discussion, moderated by Salvador Llaudes, expert on EU Affairs, co-Chair of the Observatory on the European Union.
Both Guzmán and Otero recognized that this crisis took most people and European institutions by surprise. “Europe was not ready for this crisis. We were not eagerly supportive of Italy in the first weeks and the President of the European Commission, Ursula von der Leyen, offered her apologies in the name of the whole European Union to Italy. I think this is also a lesson”, Guzmán said.
“But since then, we have set an unprecedented response to an unprecedented crisis”, she highlighted, pointing out that the EU is mobilising an enormous amount of resources to help member states coordinate their national responses and to minimize the socio-economic fallout from the COVID-19 outbreak.
Guzmán, who has provided policy advice to governments and international organizations, including the World Bank, explained the economic actions of the European Union and how it has created a historical package consisting of three immediate safety nets to support companies, people and states.
“This safety net agreed on 9 April is worth all together €540 billion and next week we are going to come up with a Commission´s proposal for a recovery fund that should be also a very solid and bold next step in the EU economic response to this crisis”, she highlighted. Also the ECB came in already on the 18th of March and announced a 750 billion pandemic programme (PPEP) for the purchase of private and public securities during the crisis. This comes in addition to the €120 billion programme announced earlier. “It is an incredible size”, Guzmán added.
As part of this emergency support package, the EU has put in place a temporary instrument to help workers keep their jobs. SURE is one of the three safety nets: a temporary scheme which can provide up to €100 billion of loans under favourable terms to member states.
Furthermore, the European Investment Bank, “which is the biggest multilateral institution in the world”, is offering liquidity support to help hard-hit small and medium-sized enterprises with an emergency support package of up to €40 billion. It was also decided to use and adapt the European Stability Mechanism created in the financial crisis “to provide a financing to the public structure when it loses their market access”, she continued.
Otero, who is an expert on international and comparative political economy and international and European Monetary Affairs, noted that the European fund to deal with the aftermath of this crisis should not be a recovery fund. “This is not about recovering. This is about transforming. It is not about recovering the old. It’s about creating the new”, he emphasized.
He regretted that in the EU we have certain institutions that have the possibility to give credit to member states, like the SM, but some members like Italy or Spain don’t want to tap into that amount of money because it is politically damaging to do so at home. “So we are in a situation where there is a fund that can be used, that could provide cheaper credit to member states, but because it has been designed badly, it cannot be used”, he said. “In certain countries, we should start to think about two things: what’s your recovery, your transformation plan, and where are you going to put the money that will come from Europe”.
Despite criticism, both speakers remained cautiously optimistic. “COVID-19 is a good test” for the EU, Otero said, recalling that this webinar was taking place at the same time as Chancellor Angela Merkel and President Emmanuel Macron joint press release about the creation of an EU bond to raise €500 billion to boost the European economy.
“The two biggest European powers, with all their differences, with all their different approaches”, he said. “Never have they been more united in history!”, he concluded.