Dombrovskis: ‘I could imagine containment costs covered by ESM loans’

European Commission executive vice-president, Valdis Dombrovskis. [EPA-EFE/STEPHANIE LECOCQ]

Following the Eurogroup’s agreement on the economic response to the coronavirus, European Commission vice-president Valdis Dombrovskis on Friday (10 April) welcomed the €540 billion package in an exclusive interview with

He said that there will a “broad interpretation” of the expenditure that will not require conditionality under the European Stability Mechanism tool, the main bone of contention with the Netherlands. For example, costs related to the containment measures could be covered without requesting reforms.

Dombrovskis also highlighted that in the exit strategy the Commission is currently drafting, avoiding a second wave of the pandemic will take precedence over economic concerns.

Eurogroup agrees on €540 billion corona-package

The Eurogroup finally agreed on a €500 billion package to support member states, companies and workers in the coronavirus crisis, after The Netherlands and Italy overcame they differences. Leaders will discuss in the coming days the recovery plan and the possibility of ‘coronabonds’.

The package agreed included the Commission’s instrument to support temporary unemployment (SURE). How many countries do you expect will request such aid?

Finance ministers agreed to put the scheme in place within two weeks. Currently, we have not received concrete requests from member states. But we expect that interest could be relatively broad. The basic idea is that we will provide back to back loans to member states, but this can be done in a very short time, in a matter of several days.

In regards to the ESM’s soft loans, the Netherlands fought until the end to attach macroeconomic conditionality. In the end, the consensus was to exclude any reform demands, as long as expenditure is allocated to health-related costs caused by the coronavirus…

Yes, there will be a requirement that these credit lines would be used to finance direct and indirect health care costs.

But it is unrealistic to believe that member states will spend 2% of their GDP on health. In the case of Spain, that would be around €26 billion, when our health budget for 2019 was around €4.2 billion. Did the Netherlands succeed in restricting the effectiveness of the ESM intervention?

It was very clearly indicated by the president of the Eurogroup, both in the Eurogroup and afterwards publicly, that this requirement is to be interpreted broadly enough. It’s not going to be excessively restrictive.

When you said that the interpretation won’t be restrictive, do you mean that, for example, some expenditure related to the containment could fall under the category of indirect costs?

I could imagine so. Of course, as you know, ESM is an intergovernmental instrument. Therefore, at the end of the day, it’s for the ESM governing body to decide. But what was discussed in the Eurogroup was a broad enough interpretation of these measures so that member states are able to present measures up to 2% of GDP as I mentioned.

Netherlands, Austria push for tougher conditions for corona-loans

The Hague and Vienna are insisting on including stricter conditionality attached to loans for coronavirus-hit countries, toughening up the formula proposed by the eurozone’s bailout fund (ESM) and seen by

But the Netherlands has already said that it would oppose using the loans for this kind of costs without conditionality. Is there a possibility that this ESM instrument will be watered down during the implementation?

It is worth noting that the Netherlands is part of this agreement. All eurozone and indeed EU member states have agreed to this. There were no objections raised from any country, including the Netherlands, when the President of the Eurogroup presented the broad interpretation of this sentence.

On the recovery plan, do you already have a picture of how severe the recession will be? The ECB says that the eurozone’s GDP could fall up to 10%

Macroeconomic forecasting now is very uncertain, because it’s not a classical economic crisis. Any figure coming from different institutions is to be taken with a pinch of salt. From the Commission’s point of view, what is positive is that yesterday’s statement recognises that the next multi-annual financial framework (MFF) will play a central role in the economic recovery. We are currently working on an adjusted MFF proposal, which is going to be ambitious, front-loaded with a strong investment component. We intend to present it before the end of this month. 

Commission to put forward updated MFF by end of April

The European Commission is planning to present an updated multi-annual financial framework proposal on 29 April, as part of the recovery strategy to tackle the economic fallout of the coronavirus, according to an internal document seen by

Do you have an estimate of the volume of the investment needed? Your colleague Commissioner Thierry Breton spoke of €1.6 trillion.

There are some assessments being done in that range. But I would emphasise that this is still work in progress. We are currently preparing this proposal, and calculations are being done. But it is going to be ambitious with a strong investment component so that indeed we can finance this economic recovery. 

Your colleagues at the college also expressed different views in regards to how to finance the recovery, in particular in regards to the issuance of joint debt. Is the option of ‘coronabonds’ feasible after what we heard over the past few days?

There were quite different views if you compare, for example, the interpretation of Dutch and Italian finance ministers after the Eurogroup. I would say it’s something still to be discussed from the Commission side. We have made clear that we are open for all kinds of instruments within the treaty. But, for us, the central part of the recovery strategy will be played by the MFF.

Leak: Capitals call for 'ambitious' use of bank regulation to help with coronavirus

EU governments want the European Commission and regulators to take an “ambitious” approach when interpreting the flexibility of banking rules in the coronavirus period, to ensure that money flows to the real economy, according to a draft statement seen by

Another important piece in the recovery strategy is the financial sector. You are going to put forward a communication this month to ease some of the banking regulation in order to channel additional liquidity towards the real economy. How far will you go with this additional flexibility for banks?

We are currently preparing an interpretative communication on the application of existing flexibility in the prudential rules for the financial sector. Supervisors are already applying those rules in a flexible way. This communication will provide clarity and more reassurance to market participants that there is a coordinated EU approach about how EU prudential rules are being applied. And we will also put forward some targeted legislative changes to do some adjustments in the prudential framework, including the recent decision of the Basel Committee to postpone the implementation of Basel III by one year. That said, we are not planning a wholesale loosening of financial sector prudential rules. It is important that the financial sector is financially sound and has sufficient capital liquidity buffers.

The Basel Committee decided to postpone by one year the new rules, but some sources told me that you may consider only a half-year postponement. Is that the case?

It’s also work in progress. We expect to put forward these proposals on 23 April.

In many countries in Europe, there is a debate on how to properly calibrate the freezing of economic activity to slow down the spread of the virus. What is your view on how to balance health priorities and the economic impact in this crisis?

Given the fact that this is first and foremost a public health emergency, it’s for health experts to determine the course of action. What is important right now is to take the pandemic under control. We saw that, in some countries which were trying to delay restrictive measures based on the arguments about potential negative impact on the economy, the disease spread very rapidly, and eventually those restrictive measures had to be introduced.

Will the health criteria also predominate over the economic argument in the Commission’s exit strategy?

The Commission is now working on this exit strategy. We are preparing some guidelines based on expert advice, on how to best gradually remove the restrictions which had been imposed in a way that doesn’t allow for a second wave of the pandemic. But at the end of the day, decisions are reserved for member states. As I said, this is a public health emergency. So we need to react accordingly. Of course, in parallel, we need to support the economy with all the tools we discussed to sustain to the extent possible the productive capacity of the economy, and to allow for a rapid economic recovery. But the economic recovery will only be possible once the pandemic will be under control.

[Edited by Benjamin Fox]

Subscribe to our newsletters