Inching towards a solution for Europe

‘Stage One’, as we can call it, involved the ECB and other central banks stepping in to provide emergency liquidity to banks, businesses and (indirectly) national governments. National governments also announced fiscal stimulus measures and legislative changes, including moves to protect tenants. The details of these measures were outlined in our recent blog post.

‘Stage Two’ has now, arguably, been brought to a close. The Eurogroup (the Ministers of Finance of all Eurozone countries) engaged in marathon talks over three days this week, before eventually coming to a compromise agreement that, while far from perfect, is still a step in the right direction.

The main points of what have been agreed are:

1. Stronger support for the EIB – The Eurogroup welcomed “the initiative of the EIB Group to create a pan-European guarantee fund of EUR 25 billion, which could support EUR 200 billion of financing for companies with a focus on SMEs, throughout the EU, including through national promotional banks”. In effect, the EIB would provide guarantees in order to support lending in the EU. This would work in a similar way to the InvestEU scheme.
    
2. A role for the European Stability Mechanism – The ESM will be allowed to lend up to 2% of a countries nominal GDP in 2019 for the express purpose of supporting “domestic financing of direct and indirect healthcare, cure and prevention related costs due to the COVID 19 crisis”. For a country like Italy, this could potentially unlock around €38 billion in funding. While Spain may be able to access around €25 billion. Crucially, access to the 2% funding will not be accompanied by a demand for countries to undertake austerity or macroeconomic reform measures, as the COVID-19 crisis is an exceptional set of circumstances, unrelated to any perceived ‘fiscal indiscipline’. Countries outside of the Eurozone will be able to avail of funding under the EU’s ‘Balance of Payments Assistance’, which provides credit in partnership with the International Monetary Fund.
    
3. Support to combat unemployment – The Eurogroup threw its support behind the European Commission’s proposed ‘Support mitigating Unemployment Risks in Emergency’ (SURE) programme. It aims to provide €100 billion in order to “help workers keep their incomes and help businesses stay afloat…This allows people to continue to pay their rent, bills and food shopping and helps provide much needed stability to the economy”. The SURE initiative will allow firms to temporarily reduce the hours of their workers, with workers being compensated to a degree by national schemes.

Depending on how the measures are adopted by national governments, they could potentially be used as a source of support for social, public and cooperative housing. In terms of the role of the EIB, while it cannot directly finance housing providers, it can provide money to refurbish and maintain social housing, which is so important at this time, as providers try to bring vacant units back into a state of habitability to provide for the urgent needs of those experiencing homelessness and frontline workers in the health sector who are having to take extra precautions when it comes to contact with their families. The EIB can also provide funding for retraining or reequipping of workers, meaning housing providers could avail of EIB financing to help them adapt to the new realities presented by managing homes and providing for tenants at this time, including the purchase of much needed ‘personal protective equipment’ (e.g. face masks, gloves, etc.). More generally speaking, the EIB is a valuable potential source of funding for non-market housing to provide additional new housing units. Thus, measures to support them are to be welcomed by our sector.

As for the ESM, there is also some potential interest for housing providers. The proposed 2% of 2019 GDP lending can include both direct and indirect measures to prevent the spread of COVID-19. At this time of national lockdowns, having access to a safe and secure place to live is of the upmost importance. Therefore, there are a number of potential housing related uses for the ESM funding. In theory, construction, maintenance, provision of services and financial supports to tenants to meet their rent and related housing expenses are all within the scope of what has been agreed by the Eurogroup. However, the devil will be in the detail, as countries accessing ESM funding will have to agree on its uses before the money will be provided.

The final point, the Commission’s SURE initiative, perhaps provides the most explicit reference to support for social housing providers, noting that it will allow tenants to “pay their rent”. While this is very positive, that some social providers will experience a reduction in revenues in the coming months still seems quite likely. Therefore, the SURE scheme will help to alleviate the blow, but it will still be dealt.

Looking ahead to what we can refer to as ‘Stage Three’ of policy measures to provide support to European citizens and businesses, the focus will be on the long-term ‘recovery’. The measures agreed to date have mostly been aimed at addressing the immediate impacts of the crisis. Agreeing on how we get our countries moving again when things get ‘back to normal’, will prove to be more difficult. The Eurogroup, for its part has lobbed the ball back into the European Council’s court, stating that while it was prepared to work on a “Recovery Fund”, this was “subject to guidance from Leaders”.

The Eurogroup also stated that it welcomed “the Commission’s intention to adapt its…[annual budget framework]…proposal to reflect the new situation and outlook”. This reflects moves by the EU Budget Commissioner, Johannes Hahn, to increase spending in the next three years, to frontload efforts to support a recovery from the crisis.

There also remains the highly contentious issue of so-called ‘coronabonds’. They would represent a joint debt issuance by all nations in the EU and represent a unified effort to support post-COVID-19 recovery. If, when and how coronabond are to be used will also be decided on in ‘Stage Three’.

Thus, it is over to the European Council to add the last pieces of the puzzle. They are due to meet on the 23rd of April. Speaking ahead of that meeting and in reaction to the Eurogroup decisions, the Council President, Charles Michel, has said that “It is time to lay the ground for a robust economic recovery. This plan has to relaunch our economies whilst promoting economic convergence in the EU. The EU budget will have to play a meaningful role here. Together with the President of the Commission, I am working on a Roadmap and Action Plan to ensure the well-being of all Europeans and to bring the EU back to strong, sustainable and inclusive growth based on a green and digital strategy." So, watch this space.

 

Leave comments