On Friday 8 May, the Finance Ministers of the euro area finalised the terms and conditions for activating the European Stability Mechanism (ESM) credit line that a euro-area country will be able to activate up to 2% of its national GDP (reference end 2019) in order to contribute to the health expenditure incurred to combat the Covid-19 pandemic.
We are on track to meet the “1 June” deadline for putting in place the three safety nets for states (ESM credit line of €240 billion), workers affected by short-time working (SURE instrument, €100 billion), companies (EIB pan-European guarantee fund, €200 billion), said Eurogroup President Mário Centeno (see EUROPE 12465/2).
The Portuguese Finance Minister detailed the terms and conditions of the credit line of the permanent rescue fund for the euro area that the Eurogroup approved on Friday. The conditions attached to the loans and the monitoring of the use of the funds will focus on the fight against the coronavirus, an externally induced shock that affects the Nineteen symmetrically.
“All euro-area countries meet the eligibility criteria for the ESM credit line. There is no stigma, no ‘troika’”, said Mr Centeno.
The only obligation of countries that will use it will therefore be to spend the funds paid to cover the direct and indirect health costs, as well as the costs inherent in the prevention of Covid-19.
“This is the only requirement”, added the European Commissioner for the Economy, Paolo Gentiloni.
As the Commission suggested on Thursday (see EUROPE 12482/9), there will indeed be no missions by representatives of the institutional creditors (‘troika’) to the capitals of the beneficiary countries in addition to the usual missions foreseen in the framework of the budgetary process of the ‘European Semester’.
However, the European institution’s document listing eligible expenditure was not public on Friday when we went to press.
“When we talk about health care spending, it’s really in the broadest sense. [...] Reporting will be extremely simple. The Commission is not going to turn into a Court of Auditors”, this source had nevertheless estimated at the beginning of the Eurogroup meeting. According to her, “the expenses of securing public transport” could be covered.
The ESM credit line will be made available from 15 May, the date set for the next Eurogroup meeting, which will discuss the European Resolution Fund (see EUROPE 12483/2). Countries that require it will need to have finalised national procedures, a step that may take longer, especially during the pandemic.
The financial support can be activated until the end of 2022, with the possibility of an extension on the basis of a proposal by the director of the ESM, Klaus Regling. Beneficiary countries will be able to receive funds for 12 months, but this period may be extended twice, each time for 6 months. When the aid is exhausted, they will again have to respect the European framework for macroeconomic coordination.
The loans granted will have a long maturity with an average term of 10 years. Their pricing has been set at the minimum threshold. If the ESM were to raise the necessary funds today, the margin rate would be “0.1%”, Mr Regling said. The cost of the service will be added to this margin rate.
Presidency of the Eurogroup. Asked about his future, Mr Centeno neither confirmed nor denied reports in the German press that he would not seek a second term after 13 July.
“A decision will be taken at the Eurogroup meeting in July. I'll communicate my decision in due course”, Mr Centeno said, assuring that all his energy was currently focused on combating the socio-economic crisis.
See the Eurogroup statement: https://bit.ly/2SMDm09
See the preparatory documents of the European Commission: https://bit.ly/2YKWDDe (Original version in French by Mathieu Bion)