Session 9 Flashcards
What was the economic impact of the lockdown?
Demand and supply shock
What was the difference between 2008 crisis and covid?
Considered to be a somewhat exogenous pressure on the economy. Once the pressure was released a strong rebound was expected that is a V shaped recession
Was the covid crisis really exogenous?
Not really because of :
- diffusion of the pandemic and environmental change
- Global supply chains
- Welfare downsizing
What were the challenges of the covid shock?
- Keeping the healthcare system alive
- Preserve capacity for when we would unfreeze the economy
Specify the challenges expected healthcare-wise
The health care system had insufficient capacity because of the generalised downsizing of health care facilities. There was a need to scale up the capacity as fast as possible
Specific the challenges expected with the preservation of capacity
There was a need to preserve incomes and association between workers and firms through job retention schemes.
Who did most of the emergency efforts?
Countries themselves not the EU.
What were the three categories of national fiscal policies?
1) immediate fiscal impulse
2) deferrals of payments
3) other liquidity provisions and guarantees
Define immediate fiscal impulse?
Additional government spending (medical resources etc) and foregone revenues (cancellation of certain taxes) it leads to a deficit increase
Define deferral of payment
It includes taxes and social security contributions, also the servicing of loan or the payment of utility bills. It improves the liquidity positions of individuals and companies, without cancelling their obligations.
It leads to a temporary deficit increase, but extra revenues in 2021
Define other liquidity provisions and guarantees
Export guarantees, liquidity assistance, credit lines, which creates contingent liabilities
Gives examples of the unprecedented support for labour markets.
Public spending on retention and reallocation policies were spent predominantly on preserving employment. It was very costly, but quite successful as employment did not decrease that much (around 2%)
How was the recovery?
V shaped.
What also played a role in recovery?
Automatic stabilisation. at the EU level, not a lot of discretionary fiscal response.
What part did the EU play in this crisis?
The EU acted as a facilitator.
What part did the ECB play?
It injected liquidity in the system.
- Banks and firms targeted SMEs through favourably priced LTROs + bank funding targeted firms and households
- Governments: the PEPP (temporary pandemic emergency purchase programme) wit an extra 120 billion €
How did the PEPP change?
he ignition 750 billion € eunvelope increased by 600€ billion and then by 500€, leading to a total of 1,850 billion €
What did the commission do?
First it gave some leeway to the states: Stability Pact escape / state aid rules softened
Second it provided financial assistance
What kind of financial assistance did the Commission provide?
- 37 billion €from the budget to finance expenditure
Support to mitage Unemployment Risk in an Emergency (SURE)
ESM Covid line
EIB 200 billion credit line for firms’ liquidity need
What was the guiding principle of Commission financial assistance?
Preferential rates thanks to the credit ratings of the Commission, which means that countries earn the interest rate differential.
What was put in place to support labour markets at the EU Level?
Support to mitigate unemployment risks in an emergency, which is a credit line (and not an European insurance mechanism). It is capped at 100 bn to support countries short term work (special purpose vehicle)
What was put in place to support heal system at the EU Level?
The ESM Pandemic Line, reprends up to 2% of GDP on health-related expenditure. It’s an adapted precautionary line, with light conditionality for access
As of April 2022, how much was spent on financial assistance?
SURE: 94.3 in financial support to 19 MS
ESM: 0 billion demanded
Why did SURE succeed and not ESM?
ESM was not born as a vehicle for solidarity, but its nature is unchanged for the pandemic line.
