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EU finance ministers approved a € 540 billion increase package to combat the economic damage caused by the corona virus. The measures leave the members most affected by the pandemic dissatisfied. More liquidity injections are likely to occur as the crisis continues to weigh on member economies.
The boost package agreed by EU finance ministers will show how the newly minted euro will support the unprecedented use of the European Stability Mechanism, short-term job creation and loan guarantees from the European Investment Bank. A recovery fund has also been proposed to advance the recovery phase, but has not yet been described in detail.
The European boost package shows a divided union
Following the push efforts of several national governments, the European Union has just announced its own push package. After unsuccessful attempts earlier this week, finance officials pledged EUR 540 billion last night to mitigate the blow of an inevitable and brutal recession. [The New York Times]
The most important of the new measures is a relaxation of the rules for the European Stability Mechanism (ESM). Member States can use the 240 billion euro fund almost unconditionally. Before the change, EU members had to go through a reform package before they could use ESM funds.
A billion euro aid package in the midst of the corona virus crisis. It is unlikely to be the last. https://t.co/HpXKSU7E5T
– ING Economics (@ING_Economics) April 10, 2020
In addition, EUR 100 billion is earmarked for a new short-term work program from the European Commission. The funds known as SURE will support programs that have already been implemented in most Member States.
Finally, another 200 million euros will go to the European Investment Bank. These funds serve as security for loans to which the Member States have committed themselves.
Although the scope is dramatic, the boost package has not been well received in all countries of the European Union. Requests for additional aid by a joint EU loan from the Spanish and Italian ministers, both of which are among the most affected by the pandemic, have been blocked by the Union’s richest countries. Similarly, the strongest economies in the EU managed to limit the use of funds that were only made available for health programs.
It’s not the “end of the street”
The new measures will become part of the EUR 750 billion emergency pandemic procurement program announced by the ECB last month, as well as the security relief measures described a few days ago. [Banco Central Europeo] The discord between the richest nations in the EU and the most virus-stricken countries in the south, and the fact that the recovery fund remains to be completed, make it almost certain that the block will receive additional liquidity. pumped into your economy. After all, the full extent of the economic impact of the corona virus is still unknown.
The head of European practice in the Eurasia Group, Mujtaba Rahman, commented on the need for additional measures:
“There are many significant gaps in the agreement that will only become apparent later.”
In addition, Paolo Gentiloni, EU Economic Commissioner and former Italian Prime Minister, said that this will not be the EU’s final economic response to the crisis:
“This is not the end of the street.”
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