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  18 June 2020  
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Economic and Financial Affairs

ECFIN E-news 221

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Eurogroup meeting marks new phase in crisis response as ministers consider possible euro area dimension to recovery facility
Eurogroup video conference © European Union, 2020

Meeting on 11 June, euro area finance ministers took stock of the economic situation and the policy measures required to support recovery.

They specifically discussed a possible euro area dimension to the Recovery and Resilience Facility proposed by the Commission. Now that safety nets for workers, firms and sovereigns in the emergency phase have been agreed and are ready to use, ministers will focus on the quality of expenditure and work on the complementarity of national and EU level recovery plans. Coordinating recovery plans, particularly within the euro area, is key to avoiding divergence and the build-up of imbalances. Ministers also discussed the sixth enhanced surveillance report on Greece by the Commission, commending the Greek authorities for continuing reform progress and for a decisive and appropriate policy response that has mitigated some of the adverse effects of the crisis. They approved the next tranche of debt measures. Reviewing the post-programme surveillance for Cyprus and Spain, ministers found that both countries have implemented suitable measures and reforms despite the very challenging times. In discussing the Banking Union, ministers noted that banks went from being a shock amplifier in the sovereign debt crisis, to become a shock absorber in the current crisis. They agreed that work on the strengthening of the Banking Union must continue. Lastly, Eurogroup President Mário Centeno, who will not be seeking a second mandate, announced that the process to identify his successor will begin shortly.

See also Remarks by Mário Centeno following the Eurogroup videoconference of 11 June 2020
Mário Centeno, President of the Eurogroup © European Union, 2020
Mário Centeno, President of the Eurogroup

“The European Semester is at the heart of the proposed Recovery and Resilience Facility and has always had a strong euro area dimension reflected in the Euro Area Recommendation. Taking this recommendation into account would be an appropriate way to give a legitimate euro area angle to the recovery funds.”

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Convergence report reviews Member States' progress towards joining the euro area
Cover of the convergence report © European Union, 2020

On 10 June, the European Commission published the 2020 convergence report in which it provides its assessment of the progress non-euro area Member States have made towards adopting the euro.

The report covers the seven non-euro area Member States that are legally committed to adopting the euro: Bulgaria, Czechia, Croatia, Hungary, Poland, Romania and Sweden. Convergence reports have to be issued every two years, independently of potentially ongoing euro-area accessions. Euro area accession is an open and rules-based process. The report is based on the convergence criteria, sometimes referred to as the ‘Maastricht criteria’, which include price stability, sound public finances, exchange rate stability and convergence in long-term interest rates. The compatibility of national legislation with the rules of the Economic and Monetary Union is also examined. The report concludes that: Croatia and Sweden fulfil the price stability criterion; Bulgaria, Czechia, Croatia, Hungary, Poland and Sweden fulfil the criterion on public finances; Bulgaria, Czechia, Croatia, Hungary, Poland and Sweden fulfil the long-term interest rate criterion; and none of the Member States fulfils the exchange rate criterion, as none of them is a member of the Exchange Rate Mechanism (ERM II).

See also Convergence report reviews Member States' progress towards joining the euro area
Coronavirus: Commission unveils EU vaccines strategy
Coronavirus: Commission unveils EU vaccines strategy

On 17 June, the European Commission presented a European strategy to accelerate the development, manufacturing and deployment of vaccines against COVID-19. An effective and safe vaccine against the virus is our best bet to achieve a permanent solution to the pandemic. Time is of the essence. Every month gained in finding such a vaccine saves lives, livelihoods and billions of euros. The strategy proposes a joint EU approach and builds on the mandate received from EU health ministers.

Vaccine development is a complex and lengthy process. With the proposed strategy, the Commission will support efforts to accelerate the development and availability of safe and effective vaccines in a timeframe between 12 and 18 months, if not earlier. Delivering on this complex undertaking requires running clinical trials in parallel with investing in production capacity to be able to produce millions, or even billions, of doses of a successful vaccine. The Commission is fully mobilised to support the efforts of vaccine developers in their endeavour.

See also Coronavirus: Commission unveils EU vaccines strategy
Capital Markets Union: Final report by High-Level Forum pushes for the completion of the CMU
Press conference by Josep Borrell Fontelles and Vĕra Jourová, Vice-Presidents of the European Commission © European Union, 2020

The High-Level Forum (HLF) on Capital Markets Union (CMU) published its final report on the EU's Capital Markets Union on 10 June.

The report sets out a series of clear recommendations aimed at moving the EU's capital markets forward. Completing the CMU has now become particularly urgent in order to speed up the EU's recovery from the coronavirus pandemic. A fully-fledged CMU would help rebuild the EU's economy, by providing new funding sources for businesses and investment opportunities for Europeans. It will be vital for mobilising much-needed long-term investments in new technologies and infrastructure, to tackle climate change and to deliver Europe's New Green Deal and Digital Agenda. In the final report, the HLF proposes 17 inter-connected ‘game changers’ – measures the EU needs to urgently implement in order to remove the biggest barriers in its capital markets. The HLF is made up of 28 high-level capital markets experts. Through 30 June, Commission services are seeking feedback from stakeholders on the report.

See also REUNION DU COLLEGE: Coronavirus: l'UE renforce son action contre la désinformation
Investment Plan: EU funds COVID-19 vaccine research, school construction, impact-driven digital technologies and renewable energy
© European Union, 2020

The European Investment Bank (EIB) concluded an agreement on 11 June to provide BioNTech with up to €100 million in debt financing for COVID-19 vaccine development and manufacturing.

The deal is guaranteed by the European Fund for Strategic Investments, the financial pillar of the Investment Plan for Europe, a joint initiative of the EIB and the European Commission, and benefits from Horizon 2020 InnovFin funding. BioNTech is the first European company to enter clinical testing, having started a clinical trial in Germany in April and a further clinical trial in the United States at the beginning of May. The EIB is also backing the first municipal public-private-partnership (PPP) financing in Finland with a 21.5-year tenor €60 million loan. The loan agreed on 9 June will help the city of Espoo to build eight schools and day-care centres, which will serve 4000 children and young people. The Nordic Investment Bank (NIB) has provided an equally long-term loan of up to EUR 75 million to the project. The European Investment Fund (EIF), with EFSI and InnovFin Equity backing, signed a SEK 212 million (€20 million) participation in the “NVC Fund 1 AB”, Norrsken on 9 June. The fund focuses on impact-driven companies that use digital technologies to address societal challenges, such as software for reduction of CO2 or food waste. Meanwhile, the EIB announced on 5 June that it has granted a line of credit of 450 million euros to the consortium bringing together EDF Renouvelables, Enbridge and wpd to co-finance the construction of the largest offshore wind farm project in France, located off Fecamp. In another renewable energy deal reached on 27 May, the EIB agreed to provide PLN 82m loan (around €18m) to finance photovoltaic plants in northern Poland.

See also Investment Plan for Europe
Real Economy: Helping Europe's poor cope with COVID
Screenshot of a video about the coronavirus impact © European Union, 2020

In its latest episode, Real Economy looks at what impact the coronavirus crisis is having on Europe's most vulnerable, and what the EU is doing to help them.

In 2019, 5.6% of the EU’s population or around 24 million people were deprived. Bulgaria (19.9%), Greece (15.9%) and Romania (12.6%) had the highest levels of severe deprivation in the EU last year. It's predicted that the coronavirus pandemic will significantly increase the number of deprived people in Europe and make it harder for those who are already struggling. This risk is especially high for young people, those with low levels of education, and single parent families, especially those headed by women. The Fund for European Aid to the Most Deprived (FEAD) was set up to provide €3.8 billion in EU funding for food or basic material assistance support to the most disadvantaged groups in Europe. According to Maria Joao Rodriguez, President of the Foundation for European Progressive Studies, to protect young people we need to ensure that their temporary contracts are extended over time, while to protect single parents we need to extend layoff schemes. Rodriguez adds that we need to “make sure that SMEs particularly, are directly supported with the financial means to survive and to relaunch their activities…and that minimum income schemes will work everywhere to make sure that everybody will be protected from falling into poverty.”

A Global Economy Version of QUEST: Simulation Properties
A Global Economy Version of QUEST: Simulation Properties

The paper presents the structure and simulation properties of QUEST, a multi-region New Keynesian DSGE model developed and maintained by the European Commission.

Convergence Report 2020
Convergence Report 2020

Assessment of Member States with a derogation regarding their fulfilment of the conditions for euro adoption.


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