What has the EU done so far to save the economy?

[Luca Nardini]

By Luca Nardini, 89 Connect

 

Last Thursday night EU leaders tasked the European Commission with presenting its proposal on the “Recovery Fund” by 6 May. This was the result of the EU summit, although European leaders are not yet fully unanimous on a big variety of topics such as the amount of money it will distribute to Member States.

The head of the German government Angela Merkel expressed disagreement on how to finance said Recovery Fund, be it with grants or loans. One thing is clear – and that is the fund will be linked to the European budget for the next seven years, the so called Multiannual Financial Framework (MFF) which in turn needs to adapt to the new circumstances, post-corona crisis. To this regard, Ms Merkel stated she is open to offering key financial support for a coronavirus recovery package worth as much as €2 trillion, provided she has the chance to evaluate how it would be used before committing.

On the one hand, Dutch prime minister Mark Rutte stated that it should be rather a loan-based system. On the other hand, France, Italy and Spain led demands for grants to stricken economies. During the summit, French president Emmanuel Macron warned of the seriousness of the financing that needs to be implemented. His Italian counterpart Giuseppe Conte, who has been quite under pressure in the Italian opinion lately to gain immediate financial aid from Brussels, called for grants by the “second half of the year”.  However, Ms Merkel insisted that any funding borrowed on the markets must ultimately be paid back.

In short, while a consensus is starting to emerge on the overall framework to overcome what is likely to be the deepest recession in European Union history, EU leaders did not go into the details of the economic response in their four hours teleconference. European Commission President Ursula von der Leyen acknowledges that GDP will fall everywhere, but it is no secret that it will fall more sharply in some Member States than in others.

Up to this point, to support Member States and to stimulate the economy the European Commission has put forward an ‘Economic Response Package’ which has been described as a “safety net of liquidity” to protect countries, companies and workers. At the very early stage of the crisis, the Commission suspended the Stability and Growth Pact – the EU’s fiscal rules – so that EU states could invest more than their actual expenditure ceiling and in spite of debt levels to fight the Covid-19 crisis. Secondly, it eased state aid rules, intended to preserve fair competition within the Single Market, to allow investment in strategic sectors, such as the production of medical equipment. Thirdly, it channelled EU structural funds, used to fight regional inequalities, so that countries could use them in the corona crisis response, creating a pot of €37bn. Lastly, it proposed to extend the scope of the European Solidarity Fund, so that it covers public health emergencies too, unlocking €800mln. In addition to all the above-mentioned measures, the Commission also put forward its ‘Support to Mitigate Unemployment Risks in an Emergency’ (SURE) initiative a €100bln instrument based on guarantees.

However, in such an unprecedented crisis this is not nearly enough. The Eurogroup, therefore, agreed on a €540bln response package. Other EU institutions such as the European Investment Bank (EIB) and the European Central Bank (ECB) also intervened. The former proposed to create a new corona fund worth €25bln in the form of guarantees targeting the private sector and especially the small and medium-sized companies. The latter, and perhaps the strongest financial tool implemented to face the crisis, announced the launch of a new corona-bond buying programme worth €750 bln to buy public and private debt in the markets.

Nevertheless, to date, the main instrument designed to tackle a financial crisis in the EU is the so-called European Stability Mechanism (ESM). The ESM will make available a credit line under the name of ‘Pandemic Crisis Support’ which will consist of around €240mln in the form of soft loans for countries. However, the ESM conditionality was the main bone of contention and blocked its approval for days, as some member states, such as the Netherlands, were asking stricter conditions for hard-hit Southern countries like Italy and Spain.

“We are at a moment where companies are not going to invest because there is a lot of uncertainty,” declares Grégory Claeys, a research fellow at Brussels’s think-tank Bruegel. To this purpose, President von der Leyen, who will have to present a Commission’s proposals by Mid-May, Appropriate policy response is needed on behalf of Brussels in order to tackle the high uncertainty depressing investments in the foreseeable future.

• This topic was modified 3 years, 1 month ago by Luca Nardini.

[Dino Galinovic]

Hi Luca, thanks for starting this topic. Economy/finance is not my field of expertise much, but I still think I can give my perspective on the topic. The European Parliament and in particularly the Committee on Economic and Monetary Affairs are at the forefront of the debate, actively partaking in the elaboration of European policies and solutions to prevent a deep and protracted economic crisis and to lay down foundations for the Europe’s long term recovery. But without mentioning all the actors in the story, I just want to stress out that we can all hear a lot of fancy words being throw at us, however, it is very hard to hear them talking about middle class and working class people. When you are talking about financial/economic measures, you CANNOT talk about them without mentioning the working class that is literally the backbone of every economy.

The universal goal has been to “flatten the curve” of infections. However, Western governments have largely failed to provide the means of doing so. In many Western countries, with the exception of states like Denmark and Sweden, “social distancing” was to a large extent individualized, at least initially. And even in Denmark and in Sweden, the way in which states ensured that workers could stay at home was heavily favoring capital. Hence in Denmark, the state asks companies to pay only 25 percent of sick pay in exchange for a waiver of five full vacation days by workers, which means that the crisis comes at zero cost for the employers if the lock down does not exceed 20 working days while the workers essentially pay for their sick pay through their taxes; and in Sweden, the central government legislated a 300 billion kroner support package which included that the state now covers the full costs of all sick leave which is normally being paid for by capital.

Meanwhile in Germany, due to fears of the new great recession, the shutdown of public activities did not include a lock-down of economic activities in manufacturing and other sectors of the economy not directly connected to preserving food sovereignty. For instance, the German health minister, Jens Spahn, proclaimed that it was easier to give up on public events and  than on everyday work. Initially, his government simply advised workers to shift to home-office work, even though for the vast majority of the working class this is not an option and even though in the big cities work still necessitates many workers to rely on public transit where the proximity of commuters ensures infections.

Needless to say, that the precarious workers such as the solo self-employed, freelancers as well as shop-owners are not protected by these measures insofar as they do not fall under any kind of collective bargaining agreement and because the COVID-19 crisis and the shutdown directly hit them, if, for instance, they are artists who depend on gigs and engagements. Only some countries cover the self-employed like Sweden, which covers them for 14 days of sick pay, Norway, Spain or Italy where there now exists a 600 Euros payment for all self-employed people and freelancers

[Dino Galinovic]

Moreover, even worse off are people in the gig economy. For instance, in Italy, workers in the informal economy are left with nothing, including the 2 million workers who used to be employed as maids, elderly caregivers and childcare givers (of which nine out of ten are women and around 7 out of 10 are immigrants), who are now made redundant due to the return of their employers into their private households.

In other Western states the situation is even worse than in central Europe. In the United States, the biggest employers refused to lock down their businesses and pay their workers sick-pay. Here, capitalism’s structural constraint of uninterrupted capital accumulation confronts workers with the terrible choice between evictions and possible starvation. The largest companies which are putting profits ahead of public health – included McDonald’s with 517,000 workers, Walmart with 347,000 workers, Subway with 180,000 workers, Burger King with 165,000 workers, and Target with 151,000 workers. The Trump administration initially only announced one program aimed at relieving the working class. This included sending personal checks from the government which are supposed to amount to a maximum of US$2,000. Of course, this is also connected to wanting to be re-elected.

Anyhow, I think that all these measures are still insufficient as they don’t reflect the reality of middle class and the working class, and what those people need from their Government, and the European Union at the moment.

This is just my perspective on the situation so far.

[Author]

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