August 4, 2020

The small print of the four billion euros that the EU says to be mobilizing against the coronavirus

Community literature talks about the EU mobilizing more than four billion euros against the coronavirus. And it’s true, but half. Or it’s a lie, but half. It is, above all, a hyperbolic exercise that tries to respond to those who accuse the European Union of taking collective responses, which in the 2008 crisis did not take months but years to arrive, and to design a plan to stop the fall in chopped up and design the subsequent economic recovery.

In reality, the Community institutions respond in a broad sense to the question: What is the EU? And if the EU is its institutions and the member states that compose it, the accounts are coming out.

In any case, more than half a trillion of those accounts that the community executive publishes are pending the final approval of the heads of state and government meeting this Thursday at the European Council.

The European Commission is distributing these days a chart in which they encrypt the money mobilized so far at almost 3.4 trillion euros. Contrary to what someone might think, it is not about 3.4 billion employed by the European Commission, which is the Community Executive. Not much less.

330,000 million euros. They correspond to national fiscal measures –that is to say, of the 27– facilitated by the activation of the general escape clause of the Stability and Growth Pact –the one that establishes deficit and debt caps to comply with–.

In other words, money moved by the governments under a clause that allows the open bar in spending raised, yes, the European Commission after the governments gave the go-ahead to the Brussels proposal.

2.45 billion euros in national liquidity measures, that is to say, of the Governments, approved in the temporary frame of state aid of the European Commission. Once again, the European Commission is raising its foot with the difficulties of state aid for undermining competition and equal opportunities in the single market, so that governments can grant aid to companies and thus prevent them from closing and firing your workers.

Both this measure and the one before the end depend on the muscle of each country. In other words, the liquidity that a government can inject and the aid that it can grant to a company will depend on its wealth. What Germany and the Netherlands can do will not be the same as countries like Spain, for example.

100,000 million euros of the SURE initiative of the European Commission to finance ERTE of the countries. This proposal is for the European Commission to issue debt in the markets, but first the Member States have to offer guarantees equivalent to 25,000 million. Once that is done, Brussels calculates that it will have 100 billion to lend to countries that have difficulties paying for ERTE. In other words, it is about helping those who are going to cover public money with this formula for temporary dismissal, companies and freelancers in trouble with the coronavirus.

The proposal was approved by the last Eurogroup and will be seen this Thursday at the European Council. At the moment, it is not money in circulation, it is pending to be launched from June.

70,000 million from the EU budget to support healthcare systems, SMEs, research and partners from outside the European Union.

As long as it is an EU budget, the European Commission, in this case, does have it to distribute it.

200,000 million from the European Investment Bank to support companies, especially SMEs. This item was also approved in the last Eurogroup and, again, requires the approval of the European Council to start in June.

The proposal is to create a fund with 25,000 million euros in guarantees provided by the Member States, which would allow mobilizing 200,000 million euros in financing to give liquidity to European companies. That is, money borrowed for companies.

240,000 million euros in unconditional loans from the European Stability Mechanism to finance the direct and indirect health costs of the pandemic.

Again, it’s about loans. This time, for States to respond to the health crisis.

A preventive line of credit would be activated, which could be accessed by all the countries that need it. This line would make it possible to disburse financing for up to 2% of the GDP of the country that requests it – about 25,000 million in the case of Spain.

It would be available for an initial 12-month period, credits would expire in five to ten years, and service costs would be lowered. The conditions would be limited to allocate the funds received to pay for the economic and health response and respect European tax rules.

870 billion of the European Central Bank. This item does not appear in the graph that the European Commission is distributing, but it is essential to give liquidity to the markets and prevent countries’ risk premiums from skyrocketing. If the risk premiums skyrocket, it is when countries begin to have trouble financing themselves.

This Wednesday the Spanish risk premium closed at 161 points, after rising 13.7, although this rise causes it to be more expensive to finance (before the coronavirus crisis, it was around 65 points), it is still far from the more than 600 points a the ones that came during the financial crisis. In fact, this rise has meant that for the 10-year debt issue for the amount of 15,000 million euros that took place this Wednesday, there has been a much higher demand of 96,500 million euros, the highest received by any issuer public or private for a single reference, according to the Public Treasury.

In the event that the premium runs out, the European Stability Mechanism (Mede) can be used in conjunction with the ECB’s asset purchase programs to achieve stabilization to facilitate financing needs and reduce interest payments.


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