European Council: Report on the economic policy response to the COVID-19 pandemic

European Council: Report on the comprehensive economic policy response to the COVID-19 pandemic.

The COVID-19 pandemic constitutes an unprecedented challenge with very severe socio-economic consequences. We are committed to do everything necessary to meet this challenge in a spirit of solidarity.

A coordinated and comprehensive strategy is necessary to deal with health emergency needs, to support economic activity and to prepare the ground for the recovery. This strategy should combine short, medium and long-term initiatives, taking account of the spill overs and interlinkages between our economies and the need to preserve confidence and stability.

Several measures have already been taken at the national and EU levels, as set out in the statement of the Eurogroup in inclusive format of 16 March.

A subsequent letter of the President of the Eurogroup of 24 March outlined further elements of policy response under consideration.

The European Council, in its statement of 26 March, invited the Eurogroup to present proposals on the economic response to the COVID-19 pandemic within two weeks. Replying to the Leaders’ mandate, this report takes stock of actions taken thus far and outlines a comprehensive and coordinated economic response.

Coordinated actions taken so far at the level of the Member States, the EU and the euro area

Since the onset of the crisis, Member States have continuously stepped up efforts to support the economy.

A timely, temporary and targeted discretionary fiscal stimulus is being provided in a coordinated manner. Significant public resources are directed to strengthen the healthcare sector and civil protection mechanisms and to support affected workers and economic sectors.

To date, the aggregate amount of Member States’ discretionary fiscal measures amounts to 3% of EU GDP, a threefold increase since 16 March, on top of the significant impact of automatic stabilisers.

Furthermore, Member States have so far committed to provide liquidity support for sectors facing disruptions and companies facing liquidity shortages, consisting of public guarantee schemes and deferred tax payments, which are now estimated at 16% of EU GDP, up from 10% on 16 March.

The Ministers of Finance stand ready to take further measures as needed, as developments unfold.

Flexibility in EU rules

On 23 March, Ministers of Finance agreed with the assessment of the Commission that the conditions for the use of the general escape clause of the EU fiscal framework, a severe economic downturn in the euro area or the Union as a whole, are fulfilled.

This offers the flexibility necessary to the national budgets to support the economy and to respond in a coordinated manner to the impact of the COVID-19 pandemic. Overall fiscal guidance will be provided within this framework and as part of a streamlined European Semester exercise.

We welcomed the Commission’s decision to issue a specific temporary state-aid framework to expedite public support to companies, while ensuring the necessary level playing field in the Single Market as well as the recent extension of the framework to cover support for research, testing and production relevant in the fight against the COVID 19 pandemic.

We also welcome the Commission’ guidance on the use of all the flexibilities offered by the EU public procurement framework in this emergency situation, issued on the 1st of April.

Use of the EU budget

We welcome the proposals by the Commission to make best use of existing EU budget resources to fight the crisis.

The proposal for a Coronavirus Response Investment Initiative was approved by the European Parliament and the Council and is in force as of the 1st of April. This will allow the use of EUR 37 billion under cohesion policy to address the consequences of the COVID-19 crisis.

In addition, the scope of the Solidarity Fund was broadened to include major public health crises. Starting from the 1st of April, this allows the hardest hit Member States to get access to financial support of up to EUR 800 million in 2020.

Monetary Policy

We welcome the resolute action taken by the European Central Bank to support liquidity and financing conditions to households, businesses and banks, which will help to preserve the smooth provision of credit to the economy.

On 18 March, the ECB decided to launch a EUR 750 billion Pandemic Emergency Purchase Programme (PEPP), to expand the range of eligible assets under the corporate sector purchase programme (CSPP) and to ease the collateral standards.

These measures are aimed at ensuring that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb the Covid-19 shock.

Financial Stability

We welcome the guidance provided by supervisory authorities to financial institutions on the interpretation and application of the regulatory requirements in the current exceptional circumstances.

We also welcome the release of capital buffers. To overcome the financing pressures faced by firms and households, making full use of the flexibility provided for in the regulatory framework is essential.

We will continue to monitor closely the evolution of the situation and to coordinate European and national measures. Where necessary, we stand ready to take further actions, including legislative measures, if appropriate to mitigate the impact of Covid-19.