Head of Public Affairs & Policy for the European Association of Corporate Treasurers (EACT)
Shortly after the Covid-19 pandemic spread across the EU, an initial set of measures was proposed by the European Commission proposed and approved by Member State in the Council of the EU, including the activation of the European Stability Mechanism to provide credit lines to individual Member States, support for European Investment Bank lending schemes to ailing companies, as well as an EU unemployment insurance scheme called SURE that provide financial support to Member States who have launched furlough schemes.
In parallel the European Central Bank (ECB) has adopted further measures of ultra-loose monetary policy to support the Eurozone economy in an attempt to cushion the impact of widespread lockdown measures across many countries and affecting all sectors of the economy.
With the spread of the pandemic receding slowly in recent weeks, the focus of EU policymakers has now turned to proposing, and adopting swiftly, sweeping recovery measures to support individual Member States in bouncing back from the most severe economic recession on record.
Whilst a large number of individual Member States have launched national fiscal support measures of varying sizes, depending on the national fiscal headroom, EU policymakers have been very clear that any recovery would need to be coherent across the whole of the EU to preserve the integrity and the proper functioning of the EU’s single market.
To that end, the European Commission has proposed a number of additional recovery measures. These will now need to be negotiated on by EU Member States. In parallel the European Commission has proposed or will propose a number of legislative amendments in the field of financial services to provide temporary burden relief and support the transmission mechanism between fiscal and monetary support measures and the real economy.
The European Commission has proposed the creation of a temporary budgetary facility as part of the next multi-annual EU budget with a capacity of EUR 750 bn (on top of the proposed 7 year EU budget of EUR 1.1 trillion) to provide extraordinary support to Member States and companies. The recovery measures are also viewed by the European Commission as a primary instrument for delivering and supporting the green and digital transformation of the EU across all segments of the economy – with many funds being conditional on serving that purpose. The recovery package is now subject to negotiations between EU Member States and the final shape and size could vary from what the European Commission has put forward as a proposal. These negotiations are expected to take place over the course of June and possibly July 2020.
To raise the funds for the measures, the European Commission would borrow on financial markets using its triple A rating, with reimbursement between 2027 and 2058 and debt servicing through creating new own resources that the EU can raise.The options for these new resources from 2024 – adding to national contributions, VAT-based own resource, and plastics contribution include:
The Recovery package has three define pillars. Overall the EUR 750 bn would be split into EUR 500 bn in grants + €250 bn in loans to be disbursed between 1 Jan 21 and 31 Dec 24.