As the “unprecedented” coronavirus crisis requires new tools, the European Commission is thinking of creating a new instrument to support companies at risk of insolvency, especially in vulnerable member states, two top officials said on Monday (27 April).
The Commission is particularly concerned about the impact of the pandemic on the single market, given that some companies would not have member states with deep pockets to bail them out.
“It is vitally important to avoid this crisis leading to any widening of economic, social and political divergences across countries or regions,” Commission vice-president for economy, Valdis Dombrovskis, told the European Parliament’s Committee on Economic and Monetary Affairs during a remote hearing.
For that reason, he added that the EU executive is considering “whether and how a solvency type instrument could be established to help companies across Europe to stay operational until the economy rebounds.”
“We are really in an unprecedented situation,” the Commissioner for Economy Paolo Gentiloni insisted during the same session. For that reason, the economic response to the coronavirus “should not be more of the same” – adding more money to instruments that already exist, he said.
“We need also very strong and innovative tools,” he stressed.
Given the unprecedented nature of this crisis, we need “some ‘out of the box’ thinking,” agreed Dombrovskis.
The Commissioners did not give more details of the new instrument to support companies. But they said that it would target the countries hit hard by the pandemic whose economies are in a vulnerable situation.
The mechanism would come as part of the updated proposal of the multi-annual financial framework and the recovery fund, expected by mid-May.
Gentiloni and Dombrovskis did not clarify the size or shape of the recovery fund, or how it would be integrated.
But they confirmed that the investment will be front-loaded during the first years of the budgetary period, and would include both grants and loans, one of the main bones of contention between the member states.
Countries calling for an ambitious response to the looming recession have argued that recovery funds should come through direct transfers, instead of credits.
The new stimulus would come on top of the €3.4 trillion that the countries and EU institutions have already mobilised, €540 billion in liquidity channelled through various EU instruments, and €750 billion from the ECB’s bond-buying programme.
“My impression is that there is a change in the attitude of the European institutions and member states in this crisis in relation to the previous one,” said Gentiloni.
The Italian Commissioner admitted that “it won’t be easy” to agree on the recovery fund. But he recalled that the EU is now discussing “common tools” to get out of the downturn, while in the aftermath of the financial crisis member states had to request a rescue package with conditionality attached.
The overall European response will depend on the impact of the COVID-19 crisis, and the Commission is due to present its spring economic forecast on May 7.
Gentiloni said that “the sharp recession” expected will be in line with IMF projections, which predicted a 7.5% GDP drop for the eurozone this year.
[Edited by Zoran Radosavljevic]