Silk the mona of the Eurogroup

On Thursday, two days behind schedule, the Eurogroup sealed an agreement to launch three credit programs for member states totaling around half a trillion euros. Nadia Calviño, vice president for economic affairs, gave the following optimistic interpretation of the agreement reached by the Eurogroup on Thursday.

We have reached a good agreement in the #Eurogroup, with a triple safety net for #workers, #Business and #state in the fight against # COVID19.

We will continue to work on common financing mechanisms for economic recovery.#EsteVirusLoParamosUnidoshttps://t.co/K2RRTC8Hup

- Nadia Calviño (@NadiaCalvino) April 9, 2020

But that is precisely the problem. For the real pressing need of Spain, Italy, and the rest of the countries of the south, which is to ensure that recovery after the pandemic is not stifled by austerity policies to pay the cost of the health crisis as soon as possible, it was not reached. to no agreement. It is difficult to escape the conclusion that Calviño and his French, Italian and Portuguese colleagues are wearing the silk bodysuit. His Belgian colleague, the Flemish Johan Van Overtveldt, seems to see things clearer when he concludes that the trillion euros of bond purchases by the ECB is the true European bazooka, not the half trillion agreed this Thursday by the Eurogroup.

Let's see, then, what was agreed by the Eurogroup on Thursday, and the impact this may have for Spain.

Firstly, the Eurogroup supported a proposal by the European Investment Bank (EIB) to provide a guarantee fund of 25,000 million euros with which to support up to 200,000 million loans to companies, with an emphasis on SMEs, possibly channeled through from national development banks like ICO. This proposal is still pending operational definition by the EIB. The proportional part that would correspond to Spain, with just under 9% of the GDP of the 27 in 2019, would be to contribute a little more than 2,200 million euros to the guarantee fund with the expectation that its companies would receive just under 18,000 million euros of EIB credits. Although the EIB expects its loans to be complementary to national measures, they would be geared towards sustaining companies' liquidity in the immediate crisis. Therefore, they would need to consume part of the credit guarantees enabled by the states, since no European institution is offering credit guarantees.

Secondly, the Eurogroup agreed to launch a reinsurance fund for national aid to suspend employment or reduce working hours, which in Spain we call ERTE. This fund, known as SURE (insurance) for its English acronym, will have a size of 100,000 million euros, and will be supported by guarantees from the member states. The fund will be financed by issuing bonds and will lend to member states based on their need. Spain can really benefit from this program. The reason is that, due to the structure of its labor market and dependence on sectors such as tourism, catering and leisure, the Spanish economy is going to generate a disproportionate share of ERTEs across the EU. Furthermore, Spain's financing costs in the markets are above the average for the euro area. The ERTE will cost Spain in the order of 6,000 million euros per month for the duration of the confinement, and somewhat less in the following months. All this spending could be financed on favorable terms, in exchange for a guarantee of 9,000 million euros that would be recovered when the fund closes in a few years.

Third, the Eurogroup agrees to create a MEdE credit line of up to 2% of GDP to finance direct and indirect healthcare, cure and prevention expenses of COVID-19. For Spain this would be 25,000 million euros. This credit line would be unconditional, so there would be no visits from the Troika's men in black. Again, in the case of Spain, it would be expected that the financing conditions would be favorable with respect to the bond market. But let's not kid ourselves. The MEdE money was already available, it is not new money. The only improvement is the absence of conditions as long as it is used for medical expenses.

So that 200,000 million credits from the EIB to SMEs, 100,000 million reinsurance from SURE for ERTE and 200,000 million from the MEdE credit line for health expenses, add up to half a trillion euros announced by hype to the Eurogroup.

The fourth agreement, or perhaps disagreement, is related to the post-health crisis reconstruction plan. Here the southern countries, with France and Belgium, have not achieved their objective. The ministers of economy and finance try to sell as a success having returned to the heads of state and government the hot potato to define how to structure and finance a reconstruction fund.

But the outline of a roadmap for recovery does not allow us to be optimistic that the European Union is going to implement a Marshall Plan like the one that President Pedro Sánchez insistently calls for. The Eurogroup agreement talks about job creation and reforms leading to improving the resilience and competitiveness of the economy, and to convergence between Member States. Investment, not a word. The result of the debate on the euro budget proposed by Emmanuel Macron, the French president, is repeated. It begins with a demand for an anti-cyclical stabilization budget with debt capacity, and it ends with an item in the EU budget dedicated to convergence and competitiveness. It is to be feared that all the optimism of Nadia Calviño and her southern allies will remain in an attempt to wear the silk jumpsuit.