Session 9

Question 1

What was the economic impact of the lockdown?

Answer 1

Demand and supply shock

Question 2

What was the difference between 2008 crisis and covid?

Answer 2

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

Question 3

Was the covid crisis really exogenous?

Answer 3

Not really because of :

• diffusion of the pandemic and environmental change
• Global supply chains
• Welfare downsizing

Question 4

What were the challenges of the covid shock?

Answer 4

• Keeping the healthcare system alive

- Preserve capacity for when we would unfreeze the economy

Question 5

Specify the challenges expected healthcare-wise

Answer 5

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

Question 6

Specific the challenges expected with the preservation of capacity

Answer 6

There was a need to preserve incomes and association between workers and firms through job retention schemes.

Question 7

Who did most of the emergency efforts?

Answer 7

Countries themselves not the EU.

Question 8

What were the three categories of national fiscal policies?

Answer 8

1) immediate fiscal impulse
2) deferrals of payments
3) other liquidity provisions and guarantees

Question 9

Define immediate fiscal impulse?

Answer 9

Additional government spending (medical resources etc) and foregone revenues (cancellation of certain taxes) it leads to a deficit increase

Question 10

Define deferral of payment

Answer 10

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

Question 11

Define other liquidity provisions and guarantees

Answer 11

Export guarantees, liquidity assistance, credit lines, which creates contingent liabilities

Question 12

Gives examples of the unprecedented support for labour markets.

Answer 12

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%)

Question 13

How was the recovery?

Answer 13

V shaped.

Question 14

What also played a role in recovery?

Answer 14

Automatic stabilisation. at the EU level, not a lot of discretionary fiscal response.

Question 15

What part did the EU play in this crisis?

Answer 15

The EU acted as a facilitator.

Question 16

What part did the ECB play?

Answer 16

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 €

Question 17

How did the PEPP change?

Answer 17

he ignition 750 billion € eunvelope increased by 600€ billion and then by 500€, leading to a total of 1,850 billion €

Question 18

What did the commission do?

Answer 18

First it gave some leeway to the states: Stability Pact escape / state aid rules softened
Second it provided financial assistance

Question 19

What kind of financial assistance did the Commission provide?

Answer 19

• 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

Question 20

What was the guiding principle of Commission financial assistance?

Answer 20

Preferential rates thanks to the credit ratings of the Commission, which means that countries earn the interest rate differential.

Question 21

What was put in place to support labour markets at the EU Level?

Answer 21

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)

Question 22

What was put in place to support heal system at the EU Level?

Answer 22

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

Question 23

As of April 2022, how much was spent on financial assistance?

Answer 23

SURE: 94.3 in financial support to 19 MS
ESM: 0 billion demanded

Question 24

Why did SURE succeed and not ESM?

Answer 24

ESM was not born as a vehicle for solidarity, but its nature is unchanged for the pandemic line.

Question 25

Which article provides for solidarity in case of calamities?

Answer 25

Article 122 of the TFEU, it means that there is no condition beyond control on destination of funds, which helped SURE.

Question 26

What was the purpose of the ESM?

Answer 26

Preserve financial stability following a debt crisis. It relies on strict conditionality and enhanced surveillance by default. The pandemic line streamlines the conditions for access, but still automatic enhanced surveillance,

Question 27

In the medium run, what are the challenges ahead?

Answer 27

Restart growth
Jump on a sustainable growth path
Manage the debt legacy

Question 28

How much does Next Generation amount to?

Answer 28

750 bn € guaranteed by the EU Budget. It was added to the multi annual budget.