National and European measures to reduce the economic impact of the coronavirus crisis

***** Update on 29 June 2020: Discussions on EU Coronavirus Reconstruction Fund started *****

 

EU leaders held a videoconference on 19 June 2020 on a planned EU reconstruction fund for the coronavirus crisis. 

The proposal stems from a Franco-German proposal published on 18 May 2020 (known as the ‘Merkel-Macron Plan’) which provides for the establishment of a €500 billion economic recovery fund for the EU following the coronavirus crisis. According to the Plan, the money is to be paid out in the form of non-repayable grants in order not to put a further burden on the affected countries’ national budgets. To raise the funds, the European Commission is to issue bonds on the capital market for the whole of the Union. These bonds are to be repaid jointly out of the EU budget by 2058. 

Opposition to this plan was particularly strong from the self-proclaimed ‘Thrifty Four’ from Austria, Denmark, Sweden and the Netherlands, which submitted a counter-draft shortly afterwards. Although their plan also provides for an emergency fund, it is based on a ‘loan-for-loans’ system: The aid paid out by the EU would consist exclusively of loans, which would have to be repaid by each beneficiary in the same amount. The group of four also calls for the emergency fund to be strictly limited to two years and for countries with particularly high debt to be willing to reform. The four countries vehemently reject a ‘collectivisation’ of debt and an increase in the EU budget. 

The concept of a Coronavirus Aid Fund presented by Commission President von der Leyen on 27 May 2020 builds on the Franco-German initiative, but provides for even more extensive aid: it plans for a package of €750 billion, two-thirds of which are to be paid as grants and one-third as loans. The support should in particular benefit the countries that are most severely affected. Around €300 billion are earmarked for Italy and Spain alone. Like the Merkel-Macron Plan, the Commission’s proposal also aims to repay the debts via the EU budget by 2058. In addition, discussions are underway for the EU creating new revenues, for example by expanding the European Emissions Trading Scheme and indroducing a digital tax or a plastic levy.
No agreement has yet been reached. The discussions will continue in the coming weeks.

We will keep you updated!

***** Updated on 20 March 2020: German government is working on a rescue programme for large sections of the German economy *****

 

The German government is working on a rescue programme for large sections of the German economy which are experiencing the severe negative fallout from the corona crisis and the subsequent government shutdown measures. The programme, the precise conditions of which are yet to be established, will encompass wide-ranging rescue measures on top of the liquidity support already announced, ranging from guarantees for private-sector liabilities to direct financial subsidies and to what are effectively partial privatisations in order to save companies and businesses from insolvency. Small businesses and microenterprises are also planned to benefit from these. At the moment, a programme worth around €500 billion is being discussed. The German government appears to be determined to contain the devastating effects of the corona crisis with a comprehensive rescue package similar to the one during the financial crisis.

***** News on 13 March 2020 *****

 

In view of the serious economic disruption caused by the coronavirus crisis to businesses and economies in the European Union, the German federal government and the EU Commission have announced various measures to mitigate the economic consequences. In particular, the German federal government is proposing a raft of measures already used for specific purposes in the financial crisis. The aim is to provide non-bureaucratic assistance for companies affected by the coronavirus, to avert a downward economic spiral and to enable the economy to resume its activities after the crisis without major start-up difficulties. Many measures will be financed from the still plentiful reserves of the Federal Employment Agency and from credit lines from the KfW bank.

Government measures: Short-time working allowance, liquidity support and prevention of shortages

The German government is facilitating access to short-time working allowances in order to cushion the economic consequences of the coronavirus crisis for employers and businesses. The government will temporarily reduce existing obstacles to short-time working allowances on the basis of delegated legislation. In this way, wage subsidies will already be available if 10% of the workforce is affected by shortage of work. The government is also taking over social insurance contributions for short-time workers. Unlike previously, short-time working allowance will also be paid for temporary workers.

The legislative changes were detailed by the government on March 13, 2020. They are part of the Federal Ministry of Employment’s ‘Work of Tomorrow’ Act which has been prepared for some time and has now recently been amended.

In addition, the government will provide short-term liquidity support, particularly for the sectors most affected, such as the travel industry, trade fair operators and the catering industry. Guarantees and tax deferrals are also part of the package of relief measures. Furthermore, eligibility criteria for existing KfW credit programmes are being loosened to accommodate affected businesses, and additional credit programmes are to be set up.

Another raft of measures is aimed at avoiding shortages. Firstly, a ban on Sunday working is to be eased. Some German federal states have enacted corresponding regulation on March 16, 2020. Secondly, federal states are to suspend checks on the ban on heavy goods traffic on Sundays and public holidays

Action by the European Union: Support fund and more flexible state aid rules

The European Union has also unveiled measures to cushion the economic consequences of the coronavirus crisis, on March 13, 2020. Firstly, the Commission is setting up a €25 billion fund to support small and medium-sized enterprises, the labour market and the healthcare system in the Member States and other particularly vulnerable sectors. Secondly, the EU Commission is easing the restrictions on state aid (we reported on it) and the Stability and Growth Pact to allow Member States to provide rapid and non-bureaucratic support and assistance measures to hard-hit sectors of their economies.

We’ll keep you up to date!