The European Commission is ready to “do whatever is necessary” to help the Member States and today, especially Italy, promised its President, Ursula von der Leyen, on Friday 13 March by presenting a package of emergency measures to stop the further spread of COVID-19 which is paralysing the European Union.
The coronavirus is “a major shock” to the European economy, but Mrs von der Leyen said that she is convinced that the EU is in a position to deal with it if it acts in a “determined”, “proportionate” and “coordinated” way. The measures presented are thus intended to give “time and space to manoeuvre” to national health systems to deal with the pandemic and to the most affected economic sectors, such as “tourism, transport and retail trade”, to cope with the sudden slowdown in activity.
Although the Commission will update its economic forecasts for 2020 in May, the European institution’s director-general for economic affairs, Maarten Vervey, has already anticipated a “very likely” recession for the EU and the euro area in 2020, which will result in GDP falling “significantly” below 0%.
However, in order to respond effectively to this shock, which is destabilising world stock markets, the internal market, and in particular the circulation of medical equipment, must function. “Unilateral action is wrong”, Mrs von der Leyen said. Thus, she said, imposing a travel ban from one country to another is “not the best solution”, even though health checks may take place at borders.
The measures proposed by the European institution concern various areas of European competence, such as competition and budgetary rules, the EU budget and structural funds (see EUROPE 12446/2) and air transport (see EUROPE 12446/4).
A more flexible framework for State aid. EU state aid rules allow EU countries to take measures to support businesses, especially SMEs, facing sudden economic difficulties.
In particular, Member States may grant companies “breathing space” through “wage subsidies, suspending corporate tax payments or payment of VAT”, said Vice-President Margrethe Vestager. They can also help companies deal with cash shortages, urgent rescue needs or damage caused by exceptional events.
“Nine member states” have such schemes in place, Ms Vestager said.
At present, the impact of the COVID-19 epidemic in Italy is of such magnitude that the Commission is in a position to approve additional Italian measures to remedy a serious disturbance in its economy (Article 107(3)(b) of the Treaty).
The Commission is also preparing a special legal framework under this Treaty provision which it will adopt if necessary. For, though Italy is the most affected, it is highly likely that other countries will also be eligible, according to Ms Vestager.
There is also a 24-hour hotline to provide advice on the mechanisms to be put in place, for example, reimbursement of expenses incurred and liquidity needs of SMEs.
Building on a decision already taken on Thursday in less than 24 hours (see EUROPE 12445/5), the Commission can envisage rapid measures in favour of certain companies, such as the airlines particularly affected. And it uses a legal basis that allows it to derogate from the ‘one time, last time’ rule, which prevents a company receiving aid for the first time from receiving aid again for 10 years.
“We are preparing something that we will deploy if necessary. This is a temporary framework based on Article 103(3)(b), inspired by what was done during the financial crisis”, Ms Vestager concluded.
Full flexibility of the Stability Pact. In view of the urgency, the time has not come, at this stage, to embark on a review of the European budgetary rules, but to use all the flexibility that the current Stability and Growth Pact allows to help Member States to make the necessary expenditure to cope with COVID-19.
“We’re all in this together!”, said Commission Vice-President Valdis Dombrovskis, convinced that the economies of the Member States are “strong enough” to cope with this situation, which is described at this stage as “temporary”.
He cited several provisions already provided for in the Stability and Growth Pact. First of all, the so-called ‘unusual events’ clause – which applies, for example, in the event of a terrorist attack – authorises the commitment of exceptional ‘one-off’ expenditures which will be excluded from the calculation of the structural budgetary effort.
In the case of coronavirus, this will involve purchases of medical equipment, increasing hospital and civil protection capacity, and launching information campaigns. National measures to support the liquidity of businesses, especially SMEs, in the most affected sectors are also possible, such as “transport, retail, tourism, catering”, Mr Dombrovskis said.
The Vice-President of the Commission also said that the European institution was “ready to activate the general escape clause”, which exists in the preventive and corrective arms of the Pact and which allows for dealing with exceptional situations that pose a threat to the euro area or to the EU as a whole. This clause would “in cooperation with the Council, suspend the fiscal adjustment recommended by the Council in case of a severe downturn” in the economic cycle, he said.
It is not a question of putting an end to the pact, the Vice-President said, but of using the margin of discretion it allows to support businesses and deal with the social consequences of the shutdown. It is in this spirit that we will address Member States’ requests, such as the package of measures valued at €25 billion recently put forward by the Italian Government (see EUROPE 12444/9).
“We’re all Italians!”, said Mrs von der Leyen, also in response to criticism of ECB President Christine Lagarde, who the day before had not promised to relaunch sovereign debt buyback operations in the event of an attack on a euro area country (see EUROPE 12445/1).
EIB. In addition, the Commission is in close contact with the European Investment Bank (EIB) in order to redirect more than €1 billion from the EU budget to the European Investment Fund.
The package would act as a state guarantee to “allocate up to €8 billion of liquidity to more than 100,000 companies”, Mr Dombrovskis said. According to Mr Vervey, the €1 billion envelope is expected to increase in the coming weeks. He also called on the EIB and EBRD to redirect their bank lending to better combat the economic downturn.
As banks are the main providers of credit to businesses, the ECB acting as the single supervisor within the euro area banking union and the European Banking Authority decided on Thursday to use banking prudential rules in a flexible way (see EUROPE 12445/1).
On Friday, the Commission unveiled a specific proposal to mobilise €37 billion from the cohesion funds (see EUROPE 14446/2).
Ensuring the internal market for protective equipment
In recent days, several countries – France, Germany and the Czech Republic – have curbed their exports of protective equipment. The European Commission reminded them of the importance of showing “solidarity” in the production and storage of protective equipment. It asked them to review their restrictive legislation and decrees.
“We believe that these restrictions have not been adopted in an acceptable manner. [...] This would prevent the equipment from getting where it is needed”, said Internal Market Director-General Gwenole Cozigou.
The Commission has therefore published guidelines (Annex II of the Communication) on the establishment of adequate national control mechanisms to ensure security of supply throughout Europe.
Any restrictive national measures taken under Article 36 of the TFEU to protect the health and life of persons must be justified – i.e., appropriate, necessary and proportionate to these objectives – by ensuring an adequate supply to the persons concerned while preventing the emergence or aggravation of shortages of essential goods (personal protective equipment, medical devices, medicines). And any draft national measure restricting access to medical and protective equipment must also be notified to the Commission.
The Commission also contacted suppliers to assess shortages and asked them to increase production immediately. It also launched a fast-track joint procurement procedure involving 26 Member States and adopted a measure under the EU’s rescEU civil protection mechanism to enable the Union to purchase such equipment. This measure could lead to the first purchases by early April, if approved by Member States, Mr Cozigou said.
Finally, the Commission has issued a recommendation to speed up certification measures for production devices in order to facilitate the supply of protective equipment that is not CE marked, but which is safe and meets high standards.
Employment. With regard to the provisions which would be adopted to deal with the consequences of the COVID-19 crisis on employment, the Commission stands ready to assist Member States which would take specific measures on temporary work and training of workers.
Preparatory work on the legislative proposal for a European unemployment reinsurance scheme to support Member States in maintaining employment and providing vocational training will be accelerated.
The European Globalisation Adjustment Fund (EGF) has a budget of €179 million to support workers who have lost their jobs and the self-employed in 2020.
See Commission Communication: http://bit.ly/2QdDBQE (Original version in French by Lionel Changeur, Mathieu Bion, Marion Fontana)