Eurozone Finance Ministers explored by videoconference on Tuesday 24 March several options to further strengthen the euro area’s lines of defence against the COVID-19 pandemic.
Granting ECCL credit lines by the European Stability Mechanism (ESM) – the euro area’s permanent rescue fund, which currently has a firepower of €410 billion – is the option that enjoys “broad support” within the Eurogroup, said its president, Mário Centeno, after a meeting by videoconference that is now held weekly.
He said the instrument in the making would be aimed at all 19, although not all euro-area countries would necessarily use it. It would help a recipient country to finance exclusively the fight against the pandemic and avoid the collapse of its economy to the tune of 2% of national GDP, provided that it commits itself to restoring fiscal stability afterwards.
Everyone understands that “this crisis is not the same” as in 2008, since it is “an asymmetric shock” that affects us all, Mr Centeno said. Such circumstances will have to be taken into account in the elaboration of the instrument.
For the Managing Director of the ESM, Klaus Regling, the ECCL is the “most appropriate” tool to cope with the current circumstances and to support still solvent euro-area countries against such macroeconomic shocks.
Other options were discussed, such as the provision of liquidity by the EIB, a European Commission initiative to help finance national temporary unemployment schemes and the issuance of ‘coronabonds’. However, this last option seems inaccessible at this stage.
The European Council is invited to take a position on these options on Thursday 26 March.
Advocating “a European reconstruction plan” for the economy, the Commissioner for the Economy, Paolo Gentiloni, himself in quarantine, confirmed that the Commission was working on a temporary unemployment reinsurance scheme based on Article 122.2 of the Treaty (see EUROPE 12452/2).
One of the outstanding issues is the amounts available for such an instrument within the current multiannual financial framework, he replied to a question from EUROPE, but said he was “confident” that a solution would be found quickly.
Equipped with €60 billion, the European Financial Stabilisation Mechanism (EFSM), a lending mechanism used in 2015 to avoid default on payments to Greece (see EUROPE 11362/1), could be applied.
Mr Centeno also recalled the “unprecedented” measures that were taken in just one week: – in addition to the normal play of automatic stabilisers, the economic emergency measures “doubled” the fiscal effort; – the ‘general escape clause’ of the Stability and Growth Pact has been activated (see EUROPE 12452/1); – the ECB launched the new €750 billion PEPP procedure for the massive buy-back of public and private securities (see EUROPE 12450/6).
See M. Centeno's letter to the European Council: https://bit.ly/2QN2PWy (Original version in French by Mathieu Bion with Pascal Hansens)