On Friday 3 April, euro area finance ministers worked on emergency budgetary and economic measures to complement the European response to the socio-economic crisis caused by the COVID-19 pandemic, which may be positively received at the next Eurogroup meeting on Tuesday 7 April.
The three measures that seem most likely and feasible in the short term are as follows: - the activation of the European Stability Mechanism (ESM), the permanent rescue fund for the euro area, which has an intervention capacity of EUR 410 billion; - increased mobilisation of the European Investment Bank (EIB) to provide liquidity to companies; - the creation of a temporary European unemployment reinsurance instrument (see EUROPE 12460/1).
ECCL line of credit. The ESM, an intergovernmental organisation based in Luxembourg, is working to activate two specific credit lines. The previously mentioned (see EUROPE 12453/1) ECCL credit line could help beneficiary countries to finance the immediate costs of the health and economic crises, including the return to employment (‘employment generation’) of up to 2% of national GDP. The allocated package is expected to be flexible, depending on the severity of the crisis.
At the heart of the discussions are the conditions that are expected to be attached to this aid, which was conceived in 2012 during the sovereign debt crisis and which has not been activated until now. According to a document seen by EUROPE, countries whose macroeconomic situation remains “sound” will be able to activate the ECCL credit line over a period of one year, which can be extended by 6 months. They will have to commit themselves to respect the rules of the Stability and Growth Pact, as well as the budgetary process of the ‘European Semester’, in a specific Memorandum of Understanding (‘MoU’).
There is no mention of regular monitoring by creditor representatives (‘troika’) in the beneficiary countries. This monitoring method, which was highly controversial during the Greek and Portuguese rescues, was ruled out on Friday by German Finance Minister Olaf Scholz. On Thursday, his French counterpart, Bruno Le Maire, pleaded for countries activating the ESM not to be stigmatised (see EUROPE 12460/6).
However, the document states that debtor countries will be subject to ‘enhanced surveillance’ focusing on the conditions to be met for the granting of the credit line by the Commission and in conjunction with the European Central Bank.
If an ECCL credit line is activated, the ESM would either lend directly to the beneficiary country or purchase sovereign securities directly in primary markets, since the latter action is prohibited for the ECB. Granted at the lowest possible interest rate given the crisis, these loans would be repaid over a period of 5 to 10 years.
Rapid Financing Instrument (RFI). The ESM also suggests setting up a specific credit line, the Rapid Financing Instrument, which is also intended to cover expenditures for a health and economic crisis caused by a natural disaster, including a pandemic.
The €80 billion RFI credit line would be activated over a period of one year and would provide loans with a maturity of between 3 and 5 years. It will reportedly support a beneficiary country up to the amount of its contribution to the ESM’s callable capital, again with the possibility of modulating support according to the severity of the pandemic.
A beneficiary country would have to comply with European fiscal rules and provide an economic response plan.
The ESM will raise capital on the market to finance the provisioning of the RFI credit line.
In both cases, the document indicates that the support provided by the permanent euro area rescue fund could be leveraged at the national level. Funds could be placed into a national account to enable the Nineteen to consolidate their own guarantees or to support EIB initiatives, for example, a pan-European guarantee fund or an increase in the EU Bank’s capital.
The EIB said on Friday that its board of directors had discussed, ahead of Tuesday's Eurogroup meeting, the creation of this EUR 25 billion pan-European fund, which would be capable of providing liquidity and bridging loans to European companies to the tune of EUR 200 billion. (Original version in French by Mathieu Bion)