Following tough negotiations on 9 April 2020, the finance ministers of the 19 States of the euro area achieved political agreement for a package of measures, which might comprise up to € 540 billion. However, details are not known yet. These and further measures will be negotiated in the coming days and weeks.
The political agreement contains a package of measures, which comprises three pillars: the newly created programme SURE (Support mitigating Unemployment Risks in Emergency) to support employment, a new credit line of the ESM (European Stability Mechanism) for Member States as well as the creation of the Guarantee Fund within the EIB (European Investment Bank), which is to benefit businesses.
New credit line within the scope of the ESM
No unilateral majority could be found among the finance ministers for issuing of common bonds, the so-called Corona bonds. Whilst countries such as France, Italy and Spain urge the introduction of these common bonds, it is in particular the Netherlands who vehemently oppose this. In order not to turn the meeting of the Eurogroup into a failure, agreement was reached in the current package for a new credit line within the ESM, which enables Member States to apply for a loan of maximal 2 % of their GDP. In the case that all States would use it, this would mean a volume of ca. € 240 billion.
The ESM was established in 2012 in response to the financial crisis. However, loans were subject to a strict budgetary control, which entailed hard austerity measures with fatal consequences. The new credit line will not be tied to such strict control criteria, which has to be seen as positive. Here too, it was the Netherlands, who opposed this the longest. In the end, the finance ministers agreed on the compromise that loans can only be applied for direct and indirect health related costs. Apart from that, the report of the Eurogroup includes a comment, that after the crisis, Member States “remain committed to strengthen economic and financial fundamentals”.
SURE instrument for employment
In order to support Member States in lessening the risk of unemployment during the Coronavirus crisis, the Commission had proposed the new instrument “SURE” on 2 April, which supports the model of short-time work. This is to be welcomed: with the cooperation of both Chamber of Labour and ÖGB, Austria – as have other EU countries – has already introduced a flexible and generous short-time work model. The aim is now for all other EU Member States to do likewise and to introduce similar models.
The Eurogroup has now confirmed the Commission’s proposal in general and is supporting the idea to enable Member States – within the framework of SURE – to take out low-interest loans of up to € 100 billion. However, the exact scope of the new instrument does not appear to be clearly defined yet. The Eurogroup names the support of workers and the safeguarding of jobs as the primary purpose of the instrument; however, health-related measures have been added. More specific details will be available subsequent to further negotiations. The Eurogroup calls for starting the legislative process without delay. To achieve a socially just solution, it will be important for short-time models to meet certain requirements: this includes in particular a minimum amount regarding the short-time work allowance and the integration of the social partners.
Guarantee Fund of the EIB and EU Recovery Fund as a possible next step
The Eurogroup has also decided to set up a European Guarantee Fund within the framework of the EIB of € 25 billion to support businesses with up to € 200 billion. This is added by a possible 4th pillar of a European economic response: hence, the Eurogroup has agreed to developing a recovery fund, which is to continue and support EU priorities. How this fund will be financed is not clear yet. Commissioner Valdis Dombrovskis had mentioned a fund of € 1,5 trillion. This shall be funded by bonds backed by a guarantee from Member States. Prior to the mini plenary, the large groups of the European Parliament also came out in favour of so-called “Recovery Bonds”.
What will happen next?
An EU summit of heads of state and government in form of a video conference has been scheduled for 23 April 2020. The intention is to adopt the three programmes and to negotiate the Recovery Fund. A new proposal on the Multiannual Financial Framework, which Commission President Ursula von der Leyen called a “Marshall Plan for Europe’s recovery” on 16 April 2020 before the European Parliament, shall follow on 29. April 2020.