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EU response to COVID 19

Summary note by Billy Kelleher MEP and Barry Andrews MEP

6th May 2020

As an open trading nation, Ireland needs a well-functioning and ambitious European Union to keep our citizens safe, protect jobs and promote global trade. Fianna Fáil has always been at the forefront of promoting knowledge of and support for Ireland in the EU.

This note outlines what has happened so far and some of the bigger issues that remain to be decided.

1. Initial response

In the early days of the response, several Member States took unilateral action to restrict the export of medical equipment despite requests from Italy for support. Also, border closures were announced which runs contrary to the fundamental freedoms of the Union.

In order to provide an EU-wide approach, an emergency export restriction on PPE. Whilst the EU position of potentially restricting exports to non-EU countries has been criticised and may lead to retaliation, Commissioner Hogan - during his most recent exchange of views with the Trade Committee - indicated that he is satisfied that this will not occur. Irish Pharma jobs rely on a complex import supply chain of primary products from across the globe. Interruptions to these imports could lead to redundancies.

While border restrictions are still in place, new ‘Green Lanes’ allow free movement of vital supplies and freight transport across national boundaries.

2. Announced EU supports

The following EU supports are designed collectively to help support the health emergency, to provide financial support for businesses and to protect jobs.

Health is a Member State competence. However, funds have been applied to boost research into vaccines, treatments and diagnostics. On May 4, an EU-led pledging conference raised €7.4 billion for reserach into a COVID vaccine.

In addition, the RescEU mechanism has been used to finance a stockpile of medical equipment and enable joint procurement in Member States.

  • In mid-March the European Central Bank announced its PEPP (Pandemic Emergency Purchase Programme) mechanism which provides up to €750 billion to purchase private and public sector securities (more than €100 billion already purchased).

    • This will be helpful to Governments and large corporations. At the end of April, the ECB indicated again that is was willing to increase the size of the purchase programme ‘by as much as necessary and for as long as needed’.

    • A previous restriction on buying more than a third of a Member State’s debt has been removed.

    • The PEPP programme is the single most important EU intervention for the Irish economy at present.

  • In April the ECB also indicated that it was willing to lend to banks at up to -1% (paying banks to borrow). This is intended to encourage banks to lend into the real economy. Real pressure will have to be applied to ensure that Banks lend this money (at very low interest rates) to businesses that need it.

  • In early April the European Commission announced the SURE scheme, based on Member State guarantees, which will provide up to €100 billion in assistance to Member States that experience a sudden rise in public expenditure to support employment (like our own Wage Subsidy Scheme).

    • The idea is to support short time working during the crisis. This could be a useful backstop depending on the operation of the WSS over the summer. It could also assist with our Covid Pandemic Unemployment Payment.

  • Member States have been given the option of accessing up to €33 billion of unspent Cohesion Funds for use in fighting the pandemic. This was not of great use to Ireland as Ireland is very efficient in its spending, and there was little left from Ireland’s current funds to reallocate.

  • The European Commission announced a relaxation of State Aid rules that allows Member States to provide financial support to ailing industries. So far, €200 million such aid has been approved in Ireland’s case.

  • The Stability and Growth Pact requires each Member State to keep its budget deficit below 3% and to work towards keeping National Debt at less than 60% of GDP. These two requirements have also been relaxed for the time being by the Commission as particularly debt and GNI are heading in opposite directions.

  • The European Investment Bank created a pan-European guarantee fund worth 25b. This lending will leverage up to a further 200b in lending with a major focus on SMEs.

  • In March, the ECB and the European and national supervisory authorities issued statements to clarify the use of flexibility in the existing legal framework for banks, thereby allowing banks to continue to lend to the real economy and implement mortgage payment holidays. The Commission followed up at the end of April with proposal for necessary regulatory measures to cement banks’ ability to continue to provide liquidity to companies.

    • These measures were issued with a strict caveat that the freed-up capital could not be used to pay bonuses, dividends, share buy-backs etc.

  • Finally, the European Stability Mechanism is a fall-back if Member States get in to real trouble. It is unlikely that this is a mechanism that Ireland will require to avail of. Arguably, a stigma attaches to applying for funding under the mechanism as it carries conditions that are not dissimilar to Troika bail-out and it could have a negative effect on our ability to raise sovereign debt.

3. Further sectoral support packages

Support for the Agricultural sector

In its most immediate response the Commission identified the European Agricultural Fund for Rural Development as the swiftest solution which can be rolled out by Member States and Regions through their rural development programmes, and which can support diverse situations on the ground and which are easily accessible to beneficiaries

The key features of this new rural development measure are the following:

  • It will allow Member States to pay a lump-sum to farmers and small agri-food businesses particularly affected by the COVID-19 crisis.

  • Member States and regions will be required to substantiate the targeting of the support to those most affected, based on objective and non-discriminatory criteria. In addition to eligibility criteria, selection criteria may be used to select the beneficiaries of this measure, but this is not an obligation.

  • Lump-sum payments shall be made by 31/12/2020. The level of payment may be differentiated by categories of beneficiaries, depending on how affected they are by the crisis. The maximum amount of support shall however not exceed EUR 5.000 per farmer and EUR 50 000 per SME.

  • The maximum amount that can be allocated to this measure is 1% of the envelopes of each Rural Development Programme. The Member States and regions would need to include the measure in their Rural Development Programmes via a modification and allocate funds to it via transfers from other measures.

At the end of April, the Commission announced its “second” package of crisis measures, worth nearly 80 million Euro. The legislation for this package will be fast-tracked through the Council and European Parliament.

At EU level Private Storage Aid is foreseen for the dairy sector (budget EUR 30m):

  • Cheese, (budget EUR 10m) 100 000t, to be kept in storage for min. 2 months to max. 7 months;

  • Skimmed Milk Powder, (budget EUR 6m) 90 000t, to be kept in storage either for a full year, or for a period of min 3 months to max. 7 months;

  • Butter, (budget EUR 14m) 140 000t, to be kept in storage for a min. 3 months to max. 7 months.

Private Storage Aid is also foreseen at the EU level for beef (steaks) for a total volume of 25 000t (budget EUR 26m) and sheep & goat meat for a total volume of 36 000t (EUR 20m) allowing the temporary withdrawal of product from the market for a minimum of 2 to 3 months to a maximum period of 5 months.

The Commission will also introduce greater flexibility in the implementation of market support programmes for the fruit & vegetables, olive oil, apiculture & wine sectors as well as the EU’s school scheme (milk, fruit & vegetables). The move would allow the reorientation of funding priorities towards crisis management measures for all sectors.

Support for the Fishing Industry

The Union has taken urgent action to mitigate the severe damage being inflicted on the fishing and aquaculture sectors. The fishing and aquaculture sectors are eligible for support under the new Temporary Framework for State aid, the Coronavirus Response Investment Initiative and under the European Maritime and Fisheries Fund (EMFF).

The package of specific temporary measures includes under the EMFF include:

  1. Temporary cessation of fishing activities;

  2. Suspension or reduction of aquaculture production;

  3. Temporary storage of fishery and aquaculture products;

  4. Flexible reallocation of financial resources within the operational programme of each Member State.

4. Current issues and debates in EU

a. How to assemble a recovery package

The FF delegation has been calling on the EU Council to announce a major stimulus package similar to the Marshall Plan. The European economy need at least a €2 trillion investment plan to kickstart a recovery. The European Council has been divided on these issues and it would seem that the idea of mutualised debt (so-called Corona Bonds) is now off the table despite a EP resolution supporting the idea on April 17. Debate now centres around a number of issues.

  • Should the fund be part of the Multi annual Financial Framework or should a part of it stand alone and outside the MFF?

  • Should Perpetual Bonds be issued by the Commission and paid for through new ‘own resources’ (digital tax, Emissions Trading system, single use plastic levy) as part of an expanded MFF?

  • How will the stimulus package be tailored to ensure a Green recovery?

  • Will the package consist of loans and guarantees or of grants or what mix of these?

At the time of writing the EU Commission is preparing a €2 trillion recovery package to kick start the EU economy. The package is due to be reviewed by the College of Commissioners in mid-May. The concern is whether this is largely a repackaging or front-loading of existing funds and that much of the €2 trillion price tag is a leveraging of the EU budget.

b. How to maintain the Green Deal

Environmental targets are usually road-kill in a crisis. However, the European Commission and the Parliament’s ENVI Committee are resolute in their determination that the European Green Deal continues at pace.

Work has recommenced on the Parliamentary oversight of the Deal’s various aspects with Billy currently shadowing an opinion on how the fund the Green Deal. Numbers are fluid and will depend on how the MFF is recalibrated following Covid-19.

There are concerns that due to the fall in oil prices, and the damage to the general economy, the incentive is not there for private investment in the Green Deal. €1 trillion is the bare minimum that must be spent on the deal, split roughly 55:45 between public and private. However, many expect at least the Deal to cost €2-3 trillion with all new funding coming from the private sector.

Major priorities for Ireland are the Just Transition Fund to support people and places affected by the move to a carbon-neutral economy and investments in Energy, Transport and Industry.

The EU aims to be climate neutral by 2050. This requires significant annual reductions in emissions in Member State economies estimated to be at least 7% per annum.

c. Trade

State Aid is highly regulated to ensure a level playing field within the single market. On the Trade side, China will soon arrive with a fleet of low-priced manufactured goods which have probably benefitted from major state aid over the last couple of months. European manufacturers have had their capacity significantly reduced over the last few months whilst Chinese manufacturing has largely resumed generating an imbalance. This will lead to a call from EU manufactures for tariffs to level the playing field.

Obviously, there is a danger that this descends into a Trade War at the worst possible time - a particularly bad outcome for Ireland. In this context, Ireland should continue to push for rules-based trade within a multilateral trading system.

During the last recession, the G20 played a critical role in ensuring that no such tit-for-tat tariffs were imposed. That will be more difficult on this occasion given the Trade tensions that existed as we entered the crisis.

d. Multi annual Financial Framework

The seven-year EU budget is due to come into effect on January 1st 2021. However, there is no agreement on the size of the budget. UK withdrawal put a sizeable hole in the numbers and the fall in GNI will have an impact.

The frugal four - Germany, Netherlands, Finland and Austria - initially wanted a modest budget of around 1% of EU GNI. Now the thinking is that the ‘commitments’ of each country would increase but not be drawn upon. This would allow the Commission to borrow against the increased fiscal space.

Other Member States want a budget that is more ambitious and reflects the global nature of the economic, health and climate crises.

A failure to increase the budget by at least 1.2% will put a lot of pressure on existing EU programmes such as CAP, Cohesion and Structural funds.

Germany will take over the Presidency of the EU Council on July 1st 2020 and this couldn’t come at a better time in terms of bringing order to the chaos of the MFF.

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