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Vulcan Insight: European Leaders Act to Tackle COVID-19 Fallout

With more than 60.000 Europeans infected and European stocks down 30% this year, European and G7 leaders spent the past week in crisis mode imposing drastic and unprecedented measures aimed at containing and slowing the spread of the virus.

For the first time since its establishment, countries in the EU’s Schengen area began closing their borders over the weekend to personal travel to tackle further cross-border spread and prevent cross-border shopping for stockpiling. While borders remained open for freight transport, European supply chains and manufacturing businesses have significantly been impacted by border checks, social-distancing requirements as well as regional or national lockdowns.

While border closures are legal under certain circumstances, the European Commission, on Monday morning, presented new guidelines to EU Health and Home Affairs ministers to facilitate a closer coordination for such measures and to ensure that essential cross-border goods trade remained functioning.

With the New York-based Dow Jones dropping almost 13% at one point, G7 leaders on Monday afternoon began to set out a series of unprecedented and radical measures, banning domestic or foreign travel, shutting down large parts of the economy and/or imposing movement restrictions.

French President Macron, announcing a 15-day lockdown that would only  allow only the most essential movements, declared that the world was “at war” with an “invisible, elusive and progressing” enemy. The announcement came after Spain, already in a state of emergency, announced it would postpone regional elections and Germany announced it would close its borders to Austria, Switzerland, France and Denmark and would mandate the close of all but essential shops and recreational activities. The UK and Dutch governments, meanwhile, recommended their citizens to avoid large social gatherings but so far refrained from implementing for the more drastic lockdown approaches seen in other EU countries.

However, the most unprecedented announcement came courtesy of European Commission President Ursula von der Leyen and European Council President Charles Michel, who proposed that the EU would seal off the Schengen area and impose an initial 30-day travel ban on foreign visitors. The ban will also apply to non-Schengen EU members such as Ireland, unless they opt to impose equal measures.

While leaders are taking radical steps in enforcing social distancing norms, they have also made clear they are willing to bring out the big guns to protect European businesses and the wider European and global economy “come what may”. Commenting following a call of EU finance ministers on Monday to coordinate member states’, President of the Eurogroup, Marió Centeno, announced that the combined fiscal measures at national and European levels would amount to about 1% of GDP and the combined expected liquidity measures to around 10% of GDP. These measures will be in addition to the Commission’s already announced €37 billion Corona Investment Initiative and an extra €28 billion from EU structural funds.

In addition, finance ministers discussed structural measures to minimise the economic shock and help the economy recover once the coronavirus has receded. In particular, ministers took stock of the resilience measures of the banking sector, the eurozone’s underlying fiscal governance rules as well as state aid and macroprudential rules.

Collective action

All 27 members of the European Council held a videoconference on COVID 19 in order to follow up on previous conclusions of 10 March 2020 together with the ECB President, the President of the Eurogroup and the High Representative.

The main takeaways are:

  • Limiting the spread of the virus

To limit the spread of the virus globally, the EU27 agreed to reinforce the EU’s external borders by applying a coordinated temporary restriction of non-essential travel to the EU for a period of 30 days. The passage of medicines, food and goods and the return of EU citizens to their home countries, will be ensured.

  • Tackling socio-economic consequences.

The EU 27 endorsed the Eurogroup 16 March statement and invited the Eurogroup to continuously and closely monitor economic and financial developments and to adapt without delay a coordinated policy response to the rapidly evolving situation. They supported the various initiatives taken by the European Commission in the areas of the Single Market, such as the adaptation of the State Aid rules and the use of the flexibilities provided for in the Stability and Growth Pact and the recourse to the EU budget. 

  • Providing medical equipment

They welcomed the decision taken by the European Commission to adopt a prior authorisation for the export of medical equipment. They supported the European Commission effort to (1) engage with the industry; (2) to run joint public procurements that have been recently launched and those which will be shortly finalised to provide sufficient protective equipment; (3) and purchase of protective equipment through the Civil protection framework.

Significant national responses

Belgium

Belgium has banned all non-essential activity outdoors, regulating access to supermarkets and banning all social gatherings. The new measures are set to begin at noon on Wednesday 18 March and will continue until April 5. Belgians will be allowed to go outside only in case of an emergency or to do necessary shopping such as at grocery stores or pharmacies. They may still go outside to walk, jog or bike, but have to do so alone or with people they already live with. 

France

President Emmanuel Macron announced that ‘We are at war’ against coronavirus and has barred French residents from anything other than essential outings for the next two weeks. Residents will only be able to leave their homes to shop for food, exercise and go to work if they are unable to do their jobs remotely. France has also announced unlimited state financial support for businesses and employees affected by the coronavirus outbreak, with up to €300 billion of state guarantees for bank loans to companies, with Macron reaffirming that no business, no matter what size, will face bankruptcy as a result out the fallout. The government have suspended economic reforms indefinitely and delayed the second round of the local elections until June.

Germany

On Monday, Germany closed its borders with five neighbours – France, Austria, Luxembourg, Denmark and Switzerland – to curb the spread of coronavirus, with exceptions for commercial traffic and commuters.

On the same day, Chancellor Angela Merkel announced shops, schools and other public facilities will be closed until further notice to limit social contact. With the German government also arranging airlifts to repatriate citizens stuck abroad, people have also been advised to cancel all domestic and foreign travel.

The federal government had already pledged unlimited financing to affected businesses through its national development bank last week. It is also reportedly re-drafting an earlier export ban on personal protective equipment to align with new EU export rules, following threats from Brussels to launch infringement procedures against Germany.

The Netherlands

In a rare televised address on Monday, Dutch Prime Minister Mark Rutte outlined his government is adopting a strategy of ‘maximum control’, taking measures to stagger the number of infections in order to slow the spread of coronavirus. This would be more sympathetic to the ‘herd immunity’ approach, as favoured by the UK government, but Rutte warned it may take months to reach critical immunity, requiring protections for high-risk groups in the meantime.

On Tuesday, the Dutch government introduced a multi-billion support package for an estimated 1.2 million freelancers who may have lost work, after talks with employers organisations. Most schools and childcare facilities in the Netherlands have been closed since Monday, as well as to bars, restaurants and sport clubs, in parallel with similar measures in neighbouring Belgium.

The UK

After modelling from Imperial College warned that the UK’s response to COVID-19 would overwhelm the NHS, prime minister Boris Johnson changed tact and advised the reduction of social interaction, but fell short of limiting the opening hours of shops, restaurants and other amenities in the UK. Since then, the government guidance for businesses and the freight transport industry have been updated. A warning has been issued that the current exemption for international road freight transport to the closure of European borders may be lifted at short notice. In light of the new perspective, Chancellor Rishi Sunak put forward a £330bn rescue package for UK business, including a business interruption loan scheme to assist with cash flow problems; a small business grant of £3,000 for those receiving Small Business Rates Relief (SBRR) and Rural Rates Relief; and statutory sick pay relief for SMEs. The Chancellor will lead a new committee on economic business to address COVID-19, one of four recently established by the prime minister.

Compliments of Vulcan Consulting – a member of the EACCNY.