Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Explainer: Euro zone mulls package to support economy against coronavirus

CoronavirusApr 01, 2020 07:30AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. Euro zone finance ministers meeting in Brussels 2/2

By Jan Strupczewski

BRUSSELS (Reuters) - With the euro zone economy in need of help during the coronavirus epidemic, officials have until April 9 to design a package that satisfies members with completely opposing views: those calling for joint debt issuance and those fiercely against it.

Mutualising debt has always been a red line for Germany, the Netherlands, Finland and Austria, but France, Italy, Spain and six other countries have called for "a common debt instrument issued by a European institution" to fight the economic effects of the epidemic.

EU leaders failed to agree last Thursday what to do, and gave ministers two more weeks to work it out. Deputy finance ministers will debate options on Wednesday and Monday and the finance ministers themselves are to hold a teleconference on April 7.

A compromise might emerge by early next week that would include one or more of the following elements in a package:

1. BORROWING BY THE EURO ZONE BAILOUT FUND ESM

One of the main options. The European Stability Mechanism (ESM) is owned by euro zone governments, which are jointly responsible for the debt it issues to finance a government. The ESM could extend standby credit lines, worth up to 2% of GDP, to any euro zone country that asks for it.

The snag is that it would entail a debt sustainability assessment of the applicant -- something highly-indebted Italy is loathe to submit to -- and carry some conditions, even if focused only on the pandemic. Italy and Spain want no conditions.

2. BORROWING BY THE EUROPEAN INVESTMENT BANK

An option the EU is considering. The EIB, the investment bank of the EU, is owned by EU governments. It finances all kinds of projects supported by the 27-nation bloc and could support companies hit by the epidemic. The EIB raises money by borrowing cheaply on the market thanks to its triple-A rating.

The bank has already offered to immediately deploy close to 40 billion euros of additional funding to help fight the effects of the coronavirus. EIB head Werner Hoyer has also suggested that governments give the bank 25 billion euros in additional guarantees, which could then be used as leverage to mobilize 200 billion euros in additional financing to small and medium sized companies. EU finance ministers -- its owners -- could also agree to increase the EIB's capital to further boost lending.

3. BORROWING BY THE EUROPEAN COMMISSION

The European Commission, which also has a triple-A rating, can borrow on the market against the collateral of the EU budget. It did so to raise 60 billion euros for the European Financial Stabilisation Mechanism (EFSM) -- an emergency fund created in 2010 when the sovereign debt crisis started.

The EFSM lent money mainly to bail out Ireland and Portugal, but the fund could serve all EU members. There is currently 13 billion euros left. EFSM loans came with conditions.

The Commission could use the mechanism again if governments agreed to set aside EU budget guarantees this year and in the EU's next long-term budget of 2021-2027.

4. UNEMPLOYMENT RE-INSURANCE

The European Commission has proposed a new state-supported, short-time working scheme to help people keep their jobs as the epidemic takes its toll on economies across the 27-nation bloc.

The scheme is clearly modeled on the German Kurzarbeit plan under which the government pays part of a worker's wages so that jobs are not cut despite an economic slowdown. It is not yet clear where the money for that will come from.

Explainer: Euro zone mulls package to support economy against coronavirus
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email