The European economy and COVID-19

By George N. Tzogopoulos
0 Comment(s)Print E-mail, March 31, 2020
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A security member of a supermarket is seen wearing a face mask in Berlin, capital of Germany, March 28, 2020. [Photo/Xinhua]

Europe is suffering a rising number of COVID-19 infections and related deaths. As public health remains the top priority, difficult measures are being implemented. However, lockdowns and disruption in business activities, transport, trade and several services are causing an unprecedented shock. 

Safe assessments of losses cannot be made at this time because the pandemic is ongoing. Amid uncertainty and fear, EU member-states are attempting to boost their economies at the national level; ultimately, however, a coordinated European response is required. 

At the time of writing, the European Central Bank has already announced the launch of a new temporary asset purchase program of private and public sector securities to try and counter some of the risks. 

This is called the Pandemic Emergency Purchase Program (PEPP) and will have an overall envelope of €750 billion until the end of the year. Additionally, the EU will activate the general escape clause allowing spending in member-states to deviate from the rules established by its Stability and Growth Pact. 

Other important decisions include the creation of a response initiative by the European Commission to provide €37 billions of investment under the cohesion policy and the proposal of the European Investment Bank Group to mobilize €40 billions of financing. 

Despite all this activity, enthusiasm on the potential containment of the economic consequences of the pandemic can hardly be generated. The European Federation of Food, Agriculture and Tourism trade unions, along with Food-Drink-Europe, for example, consider additional support for struggling businesses necessary. 

Further, the Italian permanent representative to the EU Maurizio Massari, writing in Politico, proposed the creation of a new tool to support health care costs and mitigate the ramifications of the quarantine to be funded by special instruments already foreseen in the EU budget. 

What he is proposing is that the discussions of the Multiannual Financial Framework must include a focus on COVID-19 impact. 

From a technical perspective, the European Stability Mechanism created in 2012 to support Eurozone countries in financial distress can contribute to this. Its Managing Director Klaus Regling told a recent press conference that a precautionary credit line might be the most suitable instrument to respond to the coronavirus challenge. 

Funds can be made available up to 2% of a country's GDP. However, the Brussels-based economic think tank Bruegel believes countries would rather refrain from applying for a precautionary credit line because conditionality would be a prerequisite. 

New memoranda of understanding in times of the pandemic will be politically toxic and economically unbearable for ordinary citizens. 

Ten years after the European debt crisis, EU's most important problem remains the inability of member-states to agree on radical measures. In most cases they are only willing to take minor steps driven by the instinct of self-preservation and tending postpone difficult decisions to a later date. 

On March 26, members of the European Parliament called for a more unified EU response that so far has proved unattainable. The opposition of Germany, echoed by the Netherlands, Austria and Finland, to Italy's plea for the issuance of Eurobonds – to be called coronabonds – is indicative of existing divisions. 

Italy is not alone. Belgium, France, Greece, Ireland, Luxembourg, Portugal, Slovenia and Spain also signed a letter to European Council President Charles Michel proposing a common debt instrument. 

In an interview with Italian newspapers French President Emmanuel Macron went further and vowed support for Italy. And according to Reuters, President of the European Central Bank Christine Lagarde urged Eurozone Finance Minister to consider one-off coronabonds issue. 

In the view of Chancellor Angela Merkel, "not since World War Two [have we] faced a challenge that depends so much on our collective solidarity." Approximately 18 months before the next federal election and her pre-announced departure from politics, the German leader will have to make the most difficult decision of her chancellorship: putting the European interest above the national one by opening the door for deeper integration.

George N. Tzogopoulos is a columnist with For more information please visit:

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