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Guest contribution ESM boss on Corona: Solidarity in Europe

DThe corona virus pandemic is a global shock that strikes all European economies. Europe is facing the worst health crisis since the Spanish flu a century ago. As a result, Europe’s economies will suffer much more damage than initially expected. That is why a coordinated and well-coordinated response is necessary, at both national and European level. The goal is to limit economic damage, maintain financial stability and prepare for economic recovery once the health crisis is over. The scale of the medical crisis and the scale of the expected economic and social damage mean that European solidarity is now urgently needed.

The EU governments have announced and initiated fiscal measures to limit the economic damage: For 2020, fiscal measures to support the economy have so far been estimated at an average of 2.3 percent of gross domestic product. The measures to support liquidity, which consist of public guarantees and tax deferrals for companies and individual citizens, together amount to over 13 percent of the gross domestic product.

A coordinated European approach is essential to complement national measures and show European solidarity. The European Commission has relaxed the rules on state aid. It has also, together with the Council of Ministers, activated the general “exception rule” of the Stability and Growth Pact to allow Member States to raise government spending if necessary. The decisions of the European Central Bank are crucial for the banking sector and financial markets to continue to function.

How Europe can mobilize money quickly

What else should be done immediately and in the near future at European level to complement national measures? How can Europe quickly mobilize additional funding to support governments, businesses and citizens in all EU countries? In the short term, at least for 2020, European solidarity should be achieved using existing institutions – the European Commission, the European Investment Bank (EIB) and the European Stability Mechanism (ESM) – and their existing instruments.

The European Commission has announced EU unemployment reinsurance to protect jobs during the Corona crisis. In addition, the Corona Response Investment Initiative will support health systems, small and medium-sized enterprises and labor markets by providing structural funds.

The EIB has proposed a pan-European guarantee fund. This guarantee would include € 25 billion guarantees from EU countries, which are used as leverage to mobilize € 200 billion in additional funding for small and medium-sized enterprises, mid-caps and companies in the real economy.

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