Eurozone: Ball game despite lockdown

While many soccer supporters in Europe miss their favourite game, European leaders played some ball today. The European ball game had first kicked the ball of a pan-European fiscal policy reaction to the Eurogroup, which last week decided on a 540bn euro package but kicked the ball to European leaders to decide on a possible Recovery Fund. Today, European leaders kicked this ball back to the European Commission.

In short, European leaders signed off on the Eurogroup proposals of a three-pillar strategy to tackle the imminent economic impact from the crisis. EIB guarantees, an ESM emergency credit line of up to 2% GDP and loans to support labour market schemes along the lines of short-time work, all adding up to 540bn euro and following the principle of solidarity in the form of cheap loans. This pan-European fiscal policy response comes on top of national rescue packages. According to European Commission President Ursula von der Leyen, all measures taken so far add up to more than 3 trillion euro. These measures will become effective as of 1 June 2020.

The real open issue for today’s meeting was the question a possible EU Recovery Fund. The past weeks saw a lot of debate about solidarity, Coronabonds, grants and transfers. This EU Recovery Fund could be a tool to support countries hit the hardest by the crisis. However, today’s meeting did not give any concrete guidance on whether or not this fund will see the light of day, what the size could be and what the funding could look like. Instead, European leaders asked the European Commission to deepen its proposal for this Recovery Fund, which would be linked to the EU’s multi-annual budget and would be a mix of loans and grants. According to von der Leyen, any such Recovery Fund would only start in 2021. The European Commission will now come up with an official proposal, which will then be discussed by the Eurogroup.

All of this means that the discussion on an EU-wide Recovery Fund will continue. From an economic perspective, the measures put in place so far could definitely tackle a liquidity crisis. Whether the measures combined with the prospects of a Recovery Fund will be sufficient from a political perspective remains to be seen. In other words: the political ball will keep rolling this season, but the question is whether it will result in tiki taka from the Spanish national team’s best period or with disappointment like the German national team’s tiki taka in 2018.