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Present EU data shows that the pandemic shock is unprecedented; and so are the EU and the states’ measures in supporting affected economy sectors. Some states, e.g. Denmark take the EU’s support seriously…
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The following measures from the EU side have been already agreed upon: first of all, the ESM Pandemic Crisis Support is being finalized and is now available for use by the states. It includes, e.g. favourable financing worth 2% of GDP in the euro area states, including the Baltics. The only condition for using this credit line (so-called “state aid”) is that money shall be used for covering direct and/or indirect healthcare costs. Now it is for each government to decide whether they wish to apply for this support to the EU institutions, mainly to the Commission.
Second, the EU adopted some measures to support workers; the member states’ ambassadors in the EU (through Coreper) recently reached an agreement to “support unemployment risks in emergency”, called SURE; it will become effective after the final procedures are adopted this week. SURE unlocks €100 billion to help workers in the EU states in keeping their jobs; some states have already showed their labour market strengths: e.g. schemes in Italy, Germany and France, like Cassa Integrazione, Kurzarbeit, Chomage partiel or other similar schemes in other states. However, for SURE to be fully operational, the member states have to agree on “national guarantees” that will enable the Commission to raise the necessary financial resources.
Third, the Commission supports the European Investment Bank Guarantee Fund efforts in mitigating the crisis, which already hits the states’ economies: in Eurostat’s recent estimate for GDP growth in the first quarter of 2020, the EU-27 ahs had a negative growth of 3.3%, and for the euro area -3.8%. Therefore, the EU’s recovery plan and al the funds shall be linked to the next Multiannual Financial Framework for 2020-24 still under discussion.
EU recovery plan and reforms in the states
As President von der Leyen noticed recently in the European Parliament, the EU recovery fund will be built on three pillars. First, supporting states’ recovery and resilience tools in investment and reforms shall be connected to the EU’s priorities, notably the green and digital transitions.
Secondly, helping to mobilize private investment (which would otherwise drop by about €800 billion in 2020-21); the effort shall support strategic sectors and help companies in solvencies.
Finally, strengthening programs that have already proven their value in the crisis, such as RescEU, as well as creating a new, dedicated health program.
Preliminary EU “rescue budget” in pandemic situation is about 1,5 trillion euros (!) and it would be operational this June; however, the final figures will be available after unanimous decision by the states’ leaders, including such issue as the balance between loans and grants (the latter are discussed in the Eurogroup).
The EU’s “temporary framework” for states’ aid measures (adopted by the EU in March and amended in April and May 2020), provides for possibilities to grant “de minimis aid” over three fiscal years to any company in the EU of up to €25,000 in the primary agricultural sector, €30,000 for companies active in the fishery and aquaculture sector, and €200,000 for companies active in all other sectors.
Reference: Commissioner Gentilone’s speech in: https://ec.europa.eu/commission/presscorner/detail/en/SPEECH_20_898
Danish example
To begin with, a Danish example shows the Baltic states’ elites two “lessons”: a) that in critical times national governance shall be more active in searching for all possible assistance from the EU; and b) the assistance shall be targeted to most urgent national mitigating efforts (like in Denmark, to support the credit institutions).
Danish government notified the Commission a national “state guarantee scheme” to support the insurance of trade among companies affected by the coronavirus outbreak. The “scheme” will help ensure that trade credit insurance remains available to all companies to secure their commercial exchanges, protect their liquidity needs and help to continue their activities.
Trade credit insurance protects companies supplying goods and services against the risk of non-payment by their clients. Given the economic impact of the coronavirus outbreak, the risk of insurers not being willing to issue this insurance has become higher. The Danish scheme ensures that trade credit insurance continues to be available to all companies, avoiding the need for buyers of goods or services to pay in advance, therefore reducing their immediate liquidity needs.
The Commission agreed with the scheme and notified Denmark that it was compatible with the EU law on “state aid principles” being targeted to remedy serious disturbances in national economy. The scheme, in particular, envisaged that: a) the trade credit insurers maintain their current level of protection in spite of the economic difficulties faced by companies due to the coronavirus outbreak; b) the guarantee is limited only to cover trade credit originated until the end of 2020; c) the scheme is open to all credit insurers in Denmark; d) the guarantee mechanism ensures risk sharing between the insurers and the state, up to a volume of approximately € 670 million (DKK 5 billion), and provides an additional safety-net to cover up to approximately €4 billion (DKK 30 billion) in total if required, and e) the guarantee fee shall provide a sufficient remuneration for the Danish state.
Source: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_897