Thread by @lucasguttenberg

At 17.00, #EUCO meets via videoconference to discuss the #COVID19 response. When it comes to economic policy, expect some form of statement in very general terms that there should be a common effort.

But what are really the options for a 🇪🇺 response?

Thread:

https://twitter.com/eucopresident/status/1236990800933855234

1/ In short: Beyond the @ecb's action (monetary policy and some supervisory action), the best we can hope for is a coordinated-but-national fiscal response. This would mirror the Dec 2008 #EUCO (see below) which agreed a 1.5% stimulus where 1.2% had to come from national budgets.

2/ In the last 12 years, we did not build any meaningful vehicle for fiscal stimulus at the 🇪🇺 level. We can do some tweaks like increase EIB capital or lower EU budget co-financing rates, but that is pretty much it. Again, this is like 2008/09, see 👇
eur-lex.europa.eu/legal-content/…

3/ So if the response will be coordinated-but-national, it is still important to trigger two important exemptions at the 🇪🇺 level: Both state aid rules and the corrective and preventive arms of the SGP contain exemptions for circumstances outside the control of member states.

4/ The @EU_Commission has already started to invoke this for 🇮🇹 last week. #EUCO today should make clear that of course these exemptions should all apply as the virus is pretty clearly outside the control of governments.

5/ So governments should in principle be free to launch a comprehensive fiscal response, in particular in a situation of historically low interest rates - at least when it comes to 🇪🇺 rules. The question is however: Will markets play along?

6/ We should early on think about what to do if a member state comes under market pressure. And we have a good instrument at hand: Precautionary credit lines. They were built exactly for a situation where countries are hit by a shock that is not of their own making.

7/ As the ESM reform has not been ratified, the old guideline on precautionary assistance is still in force. The PCCL requires no ex-post conditionality and access criteria are fairly reasonable. If there is political will, it can be delpoyed tomorrow.

esm.europa.eu/sites/default/…

8/ At least the ECCL but presumably also the PCCL are sufficient for the @ecb to trigger OMT if necessary as long as they contain primary market purchase.

This is the real difference to 2008: If there is politcal will, we have a firewall for governments.
ecb.europa.eu/press/pr/date/…

9/ So to sum up: There is not much scope for a real fiscal response at the 🇪🇺 level - but there is scope and a safety net for a coordinated-but-national effort. #EUCO today should make clear that all govts are determined to do their part.