EU Struggles to contain COVID-19’s Economic Devastation
The economic devastation caused by the coronavirus in EU countries in 2020 may be worse than previously predicted. According to the European Commission, EU economies would shrink 8.3 percent in 2020, a downgrade from predictions issued in May, which witnessed a 7.4 percent contraction. The 19 member states of the European Economic and Monetary Union that use the euro will even be worse off, contracting 8.7 percent in 2020.
The figures are particularly grim for some EU member states that were severely hit by the pandemic, including Italy, EU’s third-largest economy. It is set to shrink 11.2 percent. Also, Spain, the fourth- largest EU member state faces a 10.9 percent recession. France, which is the second-largest EU nation after Germany, is predicted to shrink 10.6 percent.
A recent finding from the Organization for Economic Cooperation and Development (O.E.C.D) and the European Commission has revealed the extent of the economic damage of the coronavirus on jobs.
The O.E.C.D measured the impact of the pandemic on jobs and conceded that the number of job losses is 10 times higher than was the case recorded during the first months of the global financial crisis in 2008. The report observed that employment in Europe, the United States and other developed economies are most unlikely to return to its pre-pandemic levels before 2022. Vulnerable workers who face tough times to find new jobs and to regain lost incomes are the most hard-hit by business lockdowns and closures.
The report estimates that joblessness in the 37 member countries of the O.E.C.D is expected to hit 9.7 percent at the end of 2020, up from 5.3 percent in 2019, and could spike to more than 12 percent if businesses shut down should a second wave of the pandemic occur.
The study finds that high-income earners were 50 percent on average found to work from home than low-income earners, who are more frequently employed in critical roles and are more likely exposed to the virus. Moreover, the study revealed that women had been more adversely affected by the virus than men. Women constitute the bulk of the workforce in the most severely affected sectors, including health care and retail, and disproportionally occupy secure jobs. The O.E.C.D. researchers found that the unpaid work burdens of women were accentuated by widespread closures of schools and child care facilities.
Similarly, self-employed workers and those with temporary or part-time contracts were found to be affected by severe income losses, particularly because employers were forced to suspend their contracts to mitigate the lost income.
Overall, there is a looming fear that an entire generation of young people risks being side-lined as employers freeze employment plans. O.E.C.D reported that online job advertisements haddeclined considerably by more than half since the lockdowns, and internships required to empower young people with valuable skills and experience have been reduced extensively.
Across many of the EU member states, there have been sustained efforts to contain the economic effects of coronavirus. Many governments responded by offering financial support to companies and income support to people unable to work or who were jobless. Meanwhile, European Union leaders are expected to reach a compromise on a 750 billion euro ($855 billion) fund to be injected into member states’ economies to enhance their recoveries.
By Emmanuel Duh
The EU moves to Shore Up Youth Employment
The European Commission on July 1, 2020, took a landmark decision to offer young people opportunities to develop their full potential to shape the future of the EU and to thrive in the green and digital transitions. The support measure aims to tackle youth unemployment in the face of the coronavirus pandemic.
The Commission proposed to allocate at least €22 billion over the next seven years to support youth employment. Some of the funds will be made available through the revamped Youth Guarantee scheme created in 2013 in the aftermath of the 2008 global financial crisis. The programme has so far benefitted some 24 million young people who had gained job offers, education, apprenticeship or training within four months.
The support action is crucial following the high levels of youth unemployment in several European societies. Young people experience increased levels of poverty and social exclusion, resulting in widening income inequality between older and younger generations.
The Youth support programme aligns green and digital transitions in EU youth and employment policies. It addresses the findings of a recent publication of the Commission’s Digital Economy and Society Index, showing that a large part of the EU population “lacks basic digital skills, even though most jobs require such skills.”
As part of the Youth Employment support programme, the Commission issued a recommendation on vocational education and training, requiring member states to make their national systems more modern, attractive, flexible and fit for the digital and green economy.
Also, it proposed to provide a renewed impetus to the European Alliance for Apprenticeships that will benefit both employers and young people and had already made available more than 900,000 opportunities. The renewed Alliance will promote national coalitions, support SMEs and strengthen the involvement of social partners: trade unions and employers' organisations.
By Emmanuel Duh
The European Central Bank announces a new stimulus to combat the coronavirus
The European Central Bank (ECB) announced, Thursday, June 4, 2020, it would add a further 600 billion euros ($676 billion) to its coronavirus rescue plan, bringing the total stimulus package to a staggering 1.35 trillion euros ($1.52 trillion). This ECB's so-called Pandemic Emergency Purchase programme (PEPP), which analysts believe has exceeded expectations is aimed at combating the economic damage caused by the coronavirus.
The European Central Bank noted in a statement: "In response to the pandemic-related downward revision to inflation over the projection horizon, the PEPP expansion will further ease the general monetary policy stance, supporting funding conditions in the real economy, especially for businesses and households." The ECB’s intervention in buying government and corporate bonds by a further €600 billion ($675 billion) will help lower market interest rates and make credit cheaper.
The ECB’s stimulus package adds to its lending programme already in place that allows commercial banks to borrow money from the Central Bank at a rate of minus 1 percent if they commit to lend the money to other customers and meet other conditions. This means commercial banks and other lenders are paid by the European Central Bank to receive its money. The aim is to ensure a steady flow of cheap credit to consumers and businesses in the eurozone.
The announcement of the massive new injection of monetary stimulus comes after the European Commission unveiled a plan to raise €750 billion ($826 billion) from fiscal stimulus programme by selling bonds that would be backed by all 27 members of the European Union. The stimulus package would have to be approved and ratified by European Union countries and the European Parliament.
By Emmanuel Duh
EU sets out Climate Action and European Green Deal
The EU has put in place key bills that set a target for Europe to become the world’s net-zero carbon emissions continent by 2050.
The bill is part of a broader package of measures called the Green Deal. These are measures ranging from ambitiously cutting greenhouse gas emissions, to investing in cutting-edge research and innovation, to preserving Europe’s natural environment. The bill will be presented at the European Parliament and its 27 member states in the months ahead, and if passed, it would require the Commission to link climate goals to every piece of legislation.
Following an impact assessment and analysis of the national energy and climate plans, and considering stakeholder contributions received for public consultation, the Commission will propose a new EU ambition to reduce greenhouse gas emissions by 2030. Under the bill, the Commission would review progress toward climate neutrality every five years after 2030, in line with the global stocktake exercise under the Paris Agreement and identify emissions targets for each country.
In response to the climate action plan, twelve member states, including France, the Netherlands, Spain and Sweden have requested that the 2030 climate target be set “as soon as possible,” ahead of the summit meeting with China in September and the United Nations climate change conference, known as COP26 in Glasgow in November.
Meanwhile, The EU is working with other countries and regions to achieve the goals of the Paris Agreement and is a leading provider of international climate finance to support developing countries to tackle climate change.
By Emmanuel Duh
European Commission and EIB release €8 billion in finance for 100,000 SMEs
(April 6, 2020). The European Commission has unlocked €1 billion from the European Fund for Strategic Investments (EFSI) that will serve as a guarantee to the European Investment Fund (EIF).
The relief package will allow the EIF to issue special guarantees to incentivise banks and other lenders to provide liquidity to at least 100,000 European SMEs and small mid-cap companies hit by the economic impact of the coronavirus pandemic, for an estimated available financing of €8 billion.
This measure fulfils the Commission’s commitment to providing immediate financial relief to hard-hit SMEs and conforms with the EIB Group’s decision on 16 March to mobilise support rapidly for Europe’s SMEs and mid-caps.
The €1 billion unlocked from the EFSI under the COSME Loan Guarantee Facility and the InnovFin SME Guarantee under Horizon 2020 allows the EIF to provide guarantees worth €2.2 billion to financial intermediaries, unlocking €8 billion in available financing. The guarantees will be offered to the market via a call for expressions of interest issued by the EIF on 7 April to several hundred financial intermediaries, comprising banks and alternative lenders. Key features of these guarantees will be:
By Emmanuel Duh
- Simplified and quicker access to the EIF guarantees;
- A higher risk cover – up to 80% of potential losses on individual loans (as opposed to the standard 50%);
- Focus on working capital loans across the EU;
- Allowing for more flexible terms, including postponement, rescheduling or payment holidays.