On Thursday, 2 April, the European Commission presented a proposal for a regulation establishing a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) such as the COVID-19 pandemic. The aim is to raise several tens of billions of euros on the markets in order to help Member States provide financial support to employees and self-employed workers who are in a fragile situation.
“Will it be enough? We are talking about €100 billion of loans, and it is an enormous amount of money. [...] This comes on top of all I mentioned before. So, this is a massive support of the EU that is laid forward here”, assured President of the European Commission Ursula von der Leyen. Nearly €2,770 billion has already been mobilised by Member States and the European Union to tackle the coronavirus, being “the largest answer to a European crisis ever given”, she added.
Mrs Von der Leyen explained that the aim is to avoid any redundancies by keeping as many workers as possible in companies, especially SMEs, and to prevent these companies from losing their momentum and their knowledge when there is an upturn in the economy.
By way of a reminder, she stated that the system proved its worth in the Nordic countries during the 2008 financial crisis; she is convinced that it deserves to be extended as widely as possible within the Union.
According to a senior Commission official, short-time work mechanisms existed in 18 Member States.
A system of loans, not grants
As anticipated (see EUROPE 12459/1), the instrument in the pipeline would consist of financial assistance of up to €100 billion. In an earlier version, the Commission had envisaged a sum of between €50 billion and €80 billion.
Loans will be raised on capital markets or from financial institutions by the European Commission on behalf of the European Union so as to obtain the most favourable terms possible for the Member States most affected by the pandemic, notably Italy and Spain.
According to a preliminary analysis by the Commission, approximately 15 Member States could apply for this instrument at present.
A voluntary or mandatory instrument?
These loans granted to Member States will be backed by a “voluntary” system of guarantees from Member States. Such terms are expected to enable the Commission to increase the volume of loans available, or so the institution hopes. To this end, a minimum amount of “irrevocable, unconditional” guarantees committed by Member States up to 25% of the maximum loan amount of €100 billion must be financed.
However, as a senior European Commission official pointed out, the instrument will only be operational once all Member State contributions have been confirmed. This would, in fact, make national contributions compulsory.
Based on Article 122 TFEU, the legislative proposal—which would require a qualified majority in the EU Council in order to be adopted—would thus require unanimity if the contribution of all 27 Member States is required to activate the instrument.
It should be noted that the contributions of each Member State will be calculated on the basis of their relative shares in the EU’s total gross national income.
Eligibility criteria
The Commission advocates flexible eligibility criteria.
Member States will be able to apply for financial assistance if and when their actual or planned public expenditure related to maintaining employment has suddenly and sharply increased in order to cope with the COVID-19 pandemic. The draft regulation states that, in particular, the aid is expected to support public expenditure related to short-time work schemes and similar measures that help protect jobs, and thus employees, against the risks of unemployment and loss of income.
In the event of a request from a State, the European Commission will consult the Member State concerned to ascertain the extent of the increase in public expenditure directly linked to the creation or extension of short-time work schemes so as to evaluate the terms of the loan and determine the amount, maximum average maturity, pricing, availability period of the aid, and the technical modalities for implementation.
In this post-Brexit transition period, the regulation does not apply to the United Kingdom. The institution announced that this country incidentally did not request to participate in it.
Numerous outstanding issues
No sooner had the initiative been presented than questions were already raised, particularly in the European Parliament. One of the major issues concerns the actual means of financing proposed. A loan mechanism means that Member States will have to repay the financial assistance at some point. This is a far cry from the subsidies provided by the European Social Fund (ESF).
The quality of the funded short-time work is also an issue. If a Member State decides to provide workers with only 10% of their previous income, the programme will still remain eligible. Similarly, concerns about expenditure control are surfacing.
Finally, another question raised is legal in nature. There is reportedly no clear definition of what a short-time work programme is, since the regulation does not give a precise definition. This vagueness could weaken the instrument’s effectiveness. What about the permanent instrument? When asked by EUROPE about the future of the proposal for a permanent unemployment reinsurance instrument (initially planned for the end of 2020), Commissioner for Jobs and Social Rights Nicolas Schmit remained cautious. “Each day has enough trouble of its own. [Today] we are facing an unprecedented crisis, but for the time being I cannot answer”, he replied. He then added, “Even in a crisis-free world—as was the case before the crisis—there is a need for unemployment insurance tools”. He stated that one thing is certain: for political and technical reasons, the legal basis cannot be the same as that used for SURE. He concluded, “If this instrument has an heir, it will require a new discussion among the States. For my part, I hope that we will continue to discuss this type of instrument. We will also perhaps learn from this first instrument what works and what doesn’t work”.
See the legislative proposal: https://bit.ly/2wMSGCv (Original version in French by Pascal Hansens)