The Eurogroup has reached an agreement on bringing EUR 500 bn -4.2% of eurozone GDP- of additional firepower to attenuate the immediate economic impact of the Covid-19 pandemic.
Three tools will be used: the SURE programme to temporarily support national safety nets, the EIB guaranteeing lending to companies -in particular SMEs- and a Pandemic Crisis Support via the ESM. The work on the creation of a Recovery Fund to boost European investments will continue. The difficult part will be to agree on its funding.
It took many hours of negotiation during two videoconferences this week, but there is an agreement within the Eurogroup at last. It brings EUR 500 bn –about 4.2% of eurozone GDP- additional firepower to attenuate the immediate economic impact of the Covid-19 pandemic. To this end, three types of tools will be used. Firstly, the SURE programme[1] -a temporary European instrument to support national safety nets- will bring EUR 100 billion to the countries facing the greatest pressures. The European Investment Bank will create a pan-European shield to guarantee EUR 200 bn of lending, in particular to SMEs. This is very important because, given their size, SMEs have less diversified business models, both in terms of products and services, but also geographically. In addition, they represent two-thirds of private sector employment in Europe[2] and they play a key role in creating new jobs. Finally, a Pandemic Crisis Support has been established for an equivalent of 2% of members states’ GDP, i.e. close to EUR 240 bn. It will be available to all ESM members. Eurogroup President Centeno’s remark that “the average Euro Area Member State affected by the COVID-19 crisis should be able to identify expenditures directly or indirectly related to healthcare, cure and prevention amounting to 2% of GDP”[3] underlined the expectation that many ESM members will apply for these funds. This should avoid being stigmatised but, in doing so, it will, more importantly, enhance the macroeconomic impact. The conditionality attached had been a sticking point in the negotiations. In the end, the Eurogroup agreed on very soft conditions, the only requirement being that the credit line is used “to support domestic financing of direct and indirect healthcare, cure and prevention related costs due to the COVID 19”.