A European response to the crisis: we’re finally there!

As we know, the COVID-19 pandemic has put a strain on the financial solidity of the entire European Union. It is clear that a massive plan is needed to overcome the crisis and revamp Europe’s competitiveness in the global stage and that only a coordinated and common response would have the chance to achieve this objective.

European institutions are aware of the challenge and have already put forward concrete proposals. This article is intended to be a summary of the main measures taken or proposed at the European level.

Initial measures

A great stimulus promptly came from the European Central Bank (ECB), which, on March 18th, launched a new bond-buying program, called Pandemic Emergency Purchase Programme. Essentially, the ECB committed on one hand to buy euro area sovereign bonds in the secondary market for an aggregate amount equal to a maximum of €750 billion (extended to €1350 billion on June 4th), thus avoiding that countries face unbearable risk premiums arising from the uncertainties due to the pandemic and allowing them to finance the needed emergency measures at relatively favorable conditions.

One the other hand, it made it easier for eurozone banks to finance themselves (with the aim of avoiding that the crisis turn into a credit crunch crisis) by easing their collateral requirements when in need of liquidity from the central bank.

The Council of the EU, instead, agreed on a package of measures aimed at helping the countries most in need. In particular:

  • European Stability System precautionary credit lines with minimal conditionalities attached are available for an amount of up to 2% of the country’s GDP. These are loans that Member States have the possibility to take out to finance healthcare-related expenses; they have a maturity of 10 years and an almost-zero interest rate.

  • A loan-based system, called SURE, was created to support Member States’ unemployment insurance, worth up to €100 billion, reimbursable under favorable conditions. It falls under the “re-insurance” category, as it does not substitute national unemployment insurance systems, but rather complements them by providing additional resources. As you may remember, we already talked about this as a desirable outcome of increased EU integration and a step forward a complete banking union.

  • Increased funding for the European Investment Bank (EIB) was agreed on, in the form of €25 billion worth of guarantees, in order to allow the EIB to extend loans to