There is no date that marks with surgical precision the moment in which the European Commission assumed that it would have to keep the free spending bar open also in 2021. During the first shock of the coronavirus, the Commissioner for the Economy, Paolo Gentiloni, was reluctant to specify when the debate would resume to reestablish the rules of the stability and growth pact.
And with the second he has already made it clear not only that that moment has not yet arrived, but that it will take time to arrive. In fact, the national budgets for next year are built on the premise that the deficit and indebtedness rules will continue to be diluted. The message is clear: expansive fiscal measures chosen “carefully” but aimed at boosting “growth” in a post-pandemic context.
The ‘escape clause’ is how this release mechanism is known for states. Unlike what happened in the previous crisis, with the pandemic they are encouraged to project their policies ignoring a deficit ceiling of 3% and indebtedness around 60% of GDP. It was the first button that the Executive of Ursula von der Leyen pressed to mitigate the effects of the pandemic. And after the first year of his mandate, it seems clear that he will be one of the last to be deactivated to achieve a post-coronavirus evolution with a square root trace: the great collapse is complete, with a partial rebound and slow but sustainable recovery.
The clause and an effect of 575,000 million euros
It was on March 20 when the European Commission formally agreed to propose the activation of this safeguard of the Stability and Growth Pact. After approval by the Council, it allows states to take measures to deal with the crisis adequately “by deviating from the budgetary requirements that would normally apply under the European budgetary framework,” it says. According to the Community Executive’s own calculations, this umbrella has made it possible to articulate response measures against covid-19 worth more than 575,000 million euros out of a total arsenal mobilized to date that reaches 4.2 trillion, a figure that it represents more than 30% of the gross domestic product of the EU.
2.1 billion from the unemployment fund
The SURE program, which covers state aid for ERTE and the self-employed, has paved the way for ‘solidarity debt’ in the EU. The Commission has carried out three debt issues in the capital market in less than a month to cover a fund that will amount to 100,000 million euros. All have been met in great demand. To date, it has raised 39,500 million euros. Spain has already received 7,000 million, a small part of the 21,000 million euros that will correspond to this program.
This debt formula will be reproduced on a much larger scale when it is authorized to seek the 750,000 million recovery plan – currently blocked by Poland and Hungary – known as ‘Next Generation EU’. According to the rules set for the historic operation, the repayment of the borrowed capital should be completed before December 31, 2058. The Von der Leyen Executive estimates that the investment mobilized with this plan will increase the levels of real GDP in the EU by approximately 1.75% in 2021 and 2022, reaching 2.25% in 2024. “This wave of investment will create up to 2 million jobs between now and 2022,” he argues.
Flexibility of state aid
Given the “great disturbance” suffered by the economy, the other key that Brussels pressed was the one that relaxes the rules of state aid. A time frame that includes direct grants, selective tax advantages and advances. Member States may establish assistance schemes to grant up to € 800,000 to a company to meet its urgent liquidity needs. They are also authorized to offer guarantees for banks to continue granting loans to customers who need them; the granting of direct loans to companies with low interest rates; or the possibility of granting safeguards to banks that channel state aid to the real economy (always making it clear that the aid is to clients, not to entities). This set of measures would have amounted to 3.045 billion euros to date. But with uneven impact.
Because they have to do with the budgetary margin of each State. And here Germany, just a month ago, stood out as the one that had concentrated 52% of the total value of the subsidies delivered to its companies. Since the pandemic broke out, the European Commission has given the green light to more than 320 national exceptional public aid schemes. More than half have been signed by Angela Merkel’s government; 15% Italy, 14% France and around 5%, Spain.
The MEDE reserve of 240,000 million
The aid of the European Stability Mechanism (ESM) in the framework of the crisis caused by the pandemic amounts to 240,000 million and has the status of ‘precautionary’. It is an offer of loans to be repaid in 10 years with an interest rate of 0.115% that the Commission calculates as a ‘lifeline’ in this first year of Germany’s mandate. The nuance is that no one seems to want to use it. The 1,350 trillion of the emergency fund against the pandemic (PEPP) of the European Central Bank have been key to the stability of the public debt. “The interest rates on our debt are at record low levels,” Vice President Nadia Calviño highlighted this week. Spain could use up to 24,000 million to finance “direct and indirect costs” caused by the pathogen.
70 billion in direct budget aid
The European Commission has also mobilized € 70 billion directly from the EU budget to support health systems, research, SMEs and external partners of the European Union. In addition, in this first year a fund of 200,000 million euros from the European Investment Bank and the European Investment Fund (which with the MEDE and ERTE programs complete the so-called ‘triple safety net’) has been set up. This is more than double what the EIB provided in all of 2019, around 63,000 million euros.
1.75%: is the increase in the real GDP levels of the EU for 2021 and 2022, a direct result of the impact of the Recovery Plan aid; the 750,000 million that the Commission will finance in the markets. The boost to GDP in 2024 would reach 2.45%