Euro area Finance Ministers will take stock of the economic and financial impact of Covid-19, on Tuesday 3 November, as many Member States again adopt strong health restrictions in an attempt to stem the second pandemic wave.
The situation is marked by “an extreme state of uncertainty” since new measures are introduced almost every day, this European source noted on Thursday 29 October. Regarding the economic situation, “we pretty well all know what the direction will be”, he added.
The European Commission, which will present its winter economic forecasts on Thursday 5 November, has forecast a spring recession of -8.7% of GDP in the euro area in 2020 on the basis of a strong economic recovery in the second half of the year.
It has already been noted that the suspension of the Stability and Growth Pact will continue in 2021 to allow Member States to commit expenditure to deal with the pandemic (see EUROPE 12574/6). “One thing is clear” for the Nineteen: whatever the date of withdrawal of the budgetary support measures, “this should not lead to a cliff-edge effect”, continued this source.
However, now is not the time to question the possibility of increasing the European budgetary response of €750 billion dedicated to economic recovery. The ongoing interinstitutional negotiations on the Multiannual Financial Framework (MFF) 2021-2027 and the Next Generation EU Recovery Plan should be finalised (see other news).
“There is nothing on the table”, the source said, when asked about discussions on possible new measures at the European level.
The source recalled that the three European safety nets for the States (European Stability Mechanism credit line), the short-time work scheme (SURE instrument) and companies (EIB pan-European guarantee fund) were operational, the last two having already been mobilised.
Banking Union. In a twenty-one country format (the Nineteen plus Bulgaria and Croatia), ministers will also exchange views on the impact of the pandemic on the Banking Union in the presence of the Chairs of the Supervisory Boards of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM).
With an acute economic crisis that will continue until the pandemic is defeated, the foreseeable accumulation of non-performing loans (NPLs) on the balance sheets of banking institutions and also the state of preparedness of the banking sector at the end of the post-Brexit transition period will be at stake.
But, at present, “there is no active political discussion” on the desirability of creating a European ‘bad bank’ to mop up the NPL stock, according to this source, referring to recent proposals by Andrea Enria, Chair of the Single Supervisory Board (see EUROPE 12590/16).
Finally, on the question of the impact of the increase in the stock of NPLs on the early introduction of the backstop for the Single Resolution Fund (SRF), this source reported a majority agreement among Member States that non-performing loans inherited from the 2008 financial crisis and NPLs related to the Covid-19 pandemic should be taken into account differently.
Digital Euro. On the basis of an ECB report (see EUROPE 12581/21), the Eurogroup will hold a first strategic discussion on the merits and requirements for the possible introduction of a digital euro.
A digital euro would be “much more than just an additional means of payment”, the source noted, pointing to issues of sovereignty, anti-money laundering and data protection. (Original version in French by Mathieu Bion)