Policymakers around the world have responded with further actions to counter the dramatic economic fallout of the COVID-19 pandemic. The single most important response came from the United States where the Senate unanimously passed a USD 2 trillion (about 9% of US GDP) economic support package on Wednesday, March 25th. The size of the package is unprecedented in US history. Its components include an envelope of USD 250 billion for payments to individuals of about USD 1,500 per adult. USD 250 billion is set aside to expand the unemployment coverage, including support for freelancers. The bill also establishes a USD 100 billion public health and social emergency fund to reimburse providers for expenses and lost revenues. To support distressed businesses, a loan and guarantee package is also included in the bill, including USD 350 billion in small business loans, and USD 500 billion in loans for distressed companies. Student loan repayments are also to be suspended.
EU Member States have also put forward a set of response measures to the pandemic. The amount of fiscal measures at national level has reached about 2% of GDP mid-last week, that is twice the size compared to only about a week ago and is increasing in size. Fiscal stimulus and other support measures vary in size across Member States and in terms of the specific instruments deployed, also reflecting domestic circumstances1, with additional direct support to hospitals and the health sector (e.g. Italy, Germany) and support schemes for firms and workers shored up. Notably, Member States have put in place additional measures to mitigate social hardship resulting from the temporary drop in incomes and to support entrepreneurs and self-employed (e.g. France and Germany).
At the EU level, a number of measures have been discussed. Proposals are currently focusing on the possibility for euro area countries to expand their room for fiscal manoeuvre through some form of risk-sharing. These would come on top of steps already taken so far, which include the application of full flexibility of the EU fiscal rules and the revised State Aid rules, increasing leeway for Member States’ policy action, and common support via the EUR 37 billion Coronavirus Response Investment Initiative (CRII) to support small businesses and the health care sector. Moreover, the European Central Bank's (ECB) EUR 750 billion Pandemic Emergency Purchase Programme (PEPP) is a major step to provide relief via monetary policy action.
The proposal of the EIB to set up a EUR 25 billion pan-European guarantee fund with contributions from Member States to boost support for firms in the EU has also been discussed at Ecofin and Eurogroup levels. The fund could build on the EIB Group’s already existing guarantee programmes and pan-European deployment channels, and therefore be deployed within a very short timeframe.
The European Commission also indicated that it is considering additional measures. Commission President Ursula von der Leyen issued a statement over the weekend (March 28th) indicating that the Commission will participate in these discussions and stands ready to assist.2 In parallel, the Commission is working on proposals for the recovery phase within the existing treaties, such as full flexibility of existing funds - such as the structural funds. The Commission will also propose changes to the MFF proposal and include a stimulus package that will ensure that cohesion within the Union is maintained through solidarity and responsibility. The President stated that she is not excluding any options within the limits of the Treaties.
1) Including NPB involvement and social support systems.
2) See link: https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_20_554