Eurogroup supports use of bailout fund to fight coronavirus crisis

There is broad consent to consider a Pandemic crisis support safeguard based on an existing ESM precautionary instrument

Eurozone finance ministers broadly supported the use of bailout fund, or the European Stability Mechanism, to help those member countries struggling hardly with the coronavirus outbreak. After the Eurogroup video conference on Tuesday, President Mário Centeno, said leaders took stock of all the measures already taken and also of the initiatives that are being explored among institutions to tackle the economic crisis caused by the coronavirus outbreak.

“First, there is a clear increase in our fiscal response”, Centeno said. “In one week alone, the total amount of the fiscal measures at national level has doubled and is now estimated at 2% of GDP. Liquidity support schemes for firms and workers have been scaled up from 10% to more than 13% of GDP”.

The Eurogroup welcomed the Commission’s temporary State-aid framework, which helps our efforts to provide public support to our companies, while safeguarding the level playing field in the Single Market. The Corona Response Investment Initiative will help to support healthcare systems, SMEs and the labour market, by making resources from the structural funds available for the challenges we face today. Accelerated legislative work is now underway to make this initiative operational.

The EIB’s proposal for a €25 billion pan-European guarantee, announced by President Hoyer, which will represent an additional €200 billion in support to SME’s, midcaps and corporates which are struggling to cope with the virus fallout, Centeno said.

The Eurogroup have started a debate on additional forms of support to reinforce crisis management and prepare the ground for economic recovery. It is committed to explore all possibilities necessary to support our economies get through these difficult times. This involves all EU institutions. This discussion has just only started and more work is needed to get to the finish line.

“The challenge our economies are facing today is in no way similar to the previous crisis, Centeno added. “This is a symmetric external shock. Moral hazard considerations are not warranted here. We must bear this in mind when we consider coronavirus dedicated instruments. This is particularly true for any ESM instruments which were set up during the last crisis,” he said.

The Eurozone finance ministers look forward to more initiatives, namely from the European Commission which is expected to bring forward its unemployment insurance proposal.

“Our discussions are more advanced on the ESM workstream because we can build upon the strong framework already in place. There is broad support to consider a Pandemic crisis support safeguard based on an existing ESM precautionary instrument, such as the Enhanced Conditions Credit Line (ECCL). This would provide an additional line of defence for the euro and work as insurance to protect us against this unfolding crisis, “Centeno said.

According to Eurogroup President, the features of this instrument would need to be consistent with the external, symmetric nature of the COVID-19 shock. This is also true for any attached conditionality. In the short term it will be targeted to coronavirus response and in the longer term, countries are expected to return to stability. This instrument would be available for all countries to apply, individually, he said. The size of the available instrument could be in the range of 2% of members’ GDP, as a benchmark. While there is broad support among members around these features, more work is needed on details.

There is broad support to consider a pandemic crisis support safeguard based on an existing ESM precautionary instrument, he said. The size of the available instrument could be in the range of 2% of members' GDP, as a benchmark, Centeno said.

"While there is broad support among members around these features, more work is needed on details." The decision will be taken at the meeting of the leaders on Thursday.

The precautionary credit line is the most suitable instrument to respond to the corona challenge, particularly the precautionary credit line called ECCL, or Enhanced Conditions Credit Line, ESM Managing Director Klaus Regling, said.

A precautionary credit line, the ECCL in particular, would be available for all member states of the euro area, but it is up to every member state to decide whether they want to apply for it or not, Regling added.

This could be adjusted possibly in view of the severity of the spreading of the coronavirus and its economic impact. If a credit line is drawn, the funds would be used to finance the country's immediate health care and economic responses to the crisis.

Responding to a question on the maximum size of the credit line, Regling said it could go up if there is a particularly serious case, but that is not decided yet. "There was today a broad consensus around this 2% number."

More on this subject: Coronavirus

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