European action plan on COVID-19 crisis – summary

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European Commission

The European Union has established a Temporary Regulatory Framework. This mechanism aims to support the Member State’s economy during this current context. There are five types of aid that countries can apply for:

  • Direct subsidies, tax benefits and advances. Member States may grant up to EUR 800,000 to a company to meet its urgent cash requirements.
  • State guarantees for loans granted by banks to companies. These State guarantees can cover loans to help companies meet immediate working capital and investment needs.
  • Subsidized public loans to companies. States may grant companies loans at reduced interest rates.
  • Safeguards for banks that channel state aid to the real economy. The Framework makes clear that this aid is considered as direct aid to the banks’ customers, not to the banks themselves, and provides guidance on how to ensure that distortions of competition between banks are minimised.
  • Short-term export credit insurance.

In addition, the Commission has put forward the Temporary Support to mitigate Unemployment Risks in an Emergency (SURE). This aid is aimed to help people keep their job during the crisis. SURE provides funding to Member States of up to EUR 100bn by covering part of the costs related to the creation or extension of national short-time work schemes.

European Central Bank

For its part, the European Central Bank has announced a Pandemic Emergency Purchase Programme with an envelope of EUR 750 billion until the end of the year, in addition to the EUR 120bn they approved the 12th of March. This amounts to 7.3% of euro area GDP. The programme is temporary and designed to address the unprecedented situation the monetary union is facing. It is available to all jurisdictions and will remain in place until we assess that the coronavirus crisis phase is over.

Following the ECB’s statement, this programme has three technical features: it fits the type of shock the EU is facing: exogenous, detached from economic fundamentals and affecting all countries in the euro area. Second, it allows to intervene in the entire yield curve, preventing financial fragmentation and distortions in credit pricing. Third, it is tailored to manage the staggered progression of the virus and the uncertainty about when and where the fallout will be worst.

In addition, ECB is making available EUR 3 trillion in liquidity through refinancing operations, including al the lowest interest rate they have ever offered: -0.75%. You can find more information here.

European Council – ECOFIN

On 23 March, Ministers of Finance agreed with the assessment of the Commission that the condition for the use of the general escape clause of the EU fiscal framework, a severe economic downturn in the euro area or the Union as a whole, are fulfilled. The European Council accepted the Commission’s decision to issue a specific temporary state-aid framework to expedite public support to companies, while ensuring the necessary level playing field in the Single Market as wee as the recent extension of the framework to cover support for research, testing and production relevant in the fight against the COVID 19 pandemic.

The Council agrees to use of EUR 37 billion under cohesion policy to address the consequences of the COVID 19 crisis. Moreover, it allows to Member States to get acces to financial support of up to EUR 800 million in 2020.

An instrument called Emergency Support is established. It would provide support of EUR 2,7 billion from EU budget resources. It can be strengthened rapidly, through contributions from Member States.

EIB Group to create a pan-European guarantee fund of EUR 25 billion, which could support EUR 200 billion of financing for companies with a focus on SMEs, throughout the EU, including through national promotional banks.

Provisions of the ESM Treaty will be followed. Access grated will be 2% of the respective Member’s GDP as of end-2019, as a benchmark. The only requirement to access domestic financing of direct and indirect healthcare, cure and prevention related costs due to de COVID 19 crisis.

They agreed to work on a Recovery Fund to prepare and support the recovery, providing funding through the EU budget to programmes designed to kick-start the economy.

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