April 2020

By Diane Thomas and Malgorzata Matowska


With governments around the globe facing an unprecedented health crisis, there is a broad consensus that the world has crossed into uncharted economic territory. In the EU, measures taken by member states have been the first line of defense against the virus’ spread. France’s unprecedented stimulus package shows how committed individual governments are to prevent economic collapse. In addition, contrary to some national statements that “Europe has let us down”, European institutions have also reacted strongly to the crisis, learning some lessons from the previous economic and financial crisis.

France’s unprecedented stimulus package

Following Emmanuel Macron’s martial speech on March 17, the French Government, backed by Parliament, passed a €45 billion stimulus package. This includes a postponement of €32 billion worth in taxes and payroll charges for companies. A further €8.5 billion have been released to finance the steep increase in part-time employment. Besides, an exceptional system of public guarantees worth €300 billion has been set up to ensure that banks continue to lend to businesses and support their cash flow. Healthcare spending has been increased by €2 billion to meet the critical need for medical equipment and to alleviate the pressure on healthcare personnel. A state of health emergency has also been officially declared.

In addition, to protect France's ambition to become a global hub for startups, the government has set up a €4 billion emergency fund to support its tech sector. The fund enables startups to benefit from specific measures, in addition to the ones already available to all companies. Startups in France will benefit from finance bridges between two fund-raising rounds, be eligible for State-guaranteed treasury loans, and benefit from accelerated procedures for public funding.

Industry involved with the “war effort”

In an announcement on March 29, Macron highlighted the role played by industry in the fight against COVID-19. In the following days, he welcomed efforts by a French industrial consortium that have committed to produce more respirators to meet the rising demand. He also stated his intention to increase the production of strategic items on the French territory, with a stated objective of full independence from mask imports by the end of 2020. For now, France remains exposed to fierce international competition when looking for suppliers for the billions of masks it so direly needs. 

The French government has closely involved industry in the effort to combat COVID-19 since the beginning of the health crisis. Weekly calls take place between ministerial cabinets and key players in every sector of activity. The French Minister for the Economy has underlined the administration’s resolve to save the French productive apparatus and to avoid a complete suspension of economic activity. The government also announced measures for sectors particularly affected by the crisis. For instance, airline companies will benefit from a relief on certain taxes and charges specific to air transport whose repayment will be spread over the next 3 years.

The European Commission steps in

Member states such as France are not alone in their struggle against COVID-19. European institutions, most notably the Commission, have launched several initiatives to reinforce public health sectors and mitigate the socio-economic impact of the crisis in the EU.

To support member states’ health sectors, the Commission created RescEU, a strategic stockpile of medical equipment that will be used to alleviate national shortages. In addition, under the Joint Procurement Agreement, member states are coordinating their purchases of items necessary for coronavirus testing. According to the Commission, this coordinated approach aims at giving member states “a strong position during their negotiations with industry on availability and price of medical products”. The EU is also putting €140 million into research projects on testing, treatment, and the search for a vaccine.

In addition to these healthcare-related measures, the Commission has also tabled a number of proposals aimed at mitigating the socioeconomic impact of the crisis. The European executive is relaxing EU budgetary rules, including its vital “3% maximum budget deficit” rule, to allow national governments to adequately finance their healthcare systems and businesses. The Commission has also set up a €37 billion Coronavirus Response Investment Initiative to provide liquidity to small businesses and to the health care sector, and simplified its State Aid rules, thus enabling faster approval of all national COVID-19 related measures. To protect critical European assets and technology, the Commission issued guidelines to help Member States better screen foreign direct investments into strategic sectors. 

Furthermore, Brussels has decided to provide sector-specific support to, among others, agriculture, fisheries and airlines. With regard to the latter, to keep essential transport flowing, the Commission has suspended a requirement that airlines operate a certain amount of flights to keep their airport slots and is encouraging member states to support air cargo operations during the crisis. Beyond the Commission, the European Central Bank’s Governing Council has added a Pandemic Emergency Purchase Programme worth €750 billion to the previously announced €120 billion plan. 

More measures on the table

Head of the Commission Von der Leyen has already announced that her institution will put its upcoming budget “at the heart of (our) efforts” to fight the coronavirus and proposed a corona-virus driven stimulus package as part of that budget.

In addition, members of the euro area, informally referred to as the “Eurogroup” are discussing more measures. The first would be a €100 billion reinsurance program for national unemployment schemes. The European funds should become available once member states offer at least €25 billion worth of guarantees. The second measure would be to earmark loans worth €240 billion from the European Stability Mechanism, a €400 billion bailout fund, for countries most affected by the virus. Whereas loans from this fund are usually conditional upon recipient countries implementing structural reforms, several countries seems to be inclined to lighten those conditions. German Federal Minister of Finance opened the door to a softening of his position, declaring: “The funds must not come with any unnecessary conditions attached”. Finally, the European Investment Bank needs member states to contribute an extra €25 billion to set up an extra €200 billion in loans to European companies. The Eurogroup has so far been unable to agree on these measures but will meet again on Thursday 9 April.

Commissioners Breton and Gentiloni called for a 4th pillar of support through a purpose-built European fund that could issue long-term bonds, informally referred to as “coronabonds”. However, some member states remain opposed to the creation of a common debt instrument. As an alternative, France is pushing the idea of a temporary EU fund to help Europe through the economic slump caused by the virus. In addition to all these intiatives, head of the Commission Von der Leyen, Spain’s PM, and the Eurogroup’s president have all called for a new Marshall Plan.

What comes next?

What will it take to reboot the economy? The French Minister for Public Action has already signaled that a new finance bill could be the right vehicle to finance an “exit from the crisis”. However, the European Internal Market Commissioner assesses that Europe’s post-coronavirus recovery would cost €1.6 trillion, an amount that far exceeds both the European Stability Mechanism bailout fund and the ECB’s generous envelope. Last but not least, the intensity with which the health crisis is already hitting the United States, the EU’s largest trading partner, suggests that the bloc may have to further ramp up its effort to find a road back to economic and financial stability.

UPDATED: April 10, 2020

  • France. On March 9, 2020, the Minister of Economy and Finance and the Minister of Action and Public accounts have announced an increase of the stimulus package which will amount to €100 billion instead of the initial €45 billion. It will be composed of €35 billion of budgetary measures, among which €20 billion for part-time employment, €7 billion for health expenditure (of which €4 billion for the purchase of health equipment). With regard to the future recovery plan, they mentioned specific plans for tourism, aeronautics or the automotive industry given the massive impact of the crisis on their activity.

  • European Union. The Eurogroup meeting of April 9, 2020 has made the situation evolve with regard to the crisis management plan and a potential recovery plan. The Finance Ministers of European Union have reached a compromise to trigger the three above mentioned instruments to help member states face the COVID-19 crisis: a European Stability Mechanism credit line (up to €240 billion), a pan-European guarantee fund hosted by the European Investment Bank (€200 billion), and the SURE instrument to support national unemployment schemes (€100 billion). The ESM instrument will be accessible to each state, up to 2% of its GDP. The Eurogroup also “agreed to work on a Recovery Fund to prepare and support the recovery”. Such a fund would be “temporary, targeted and commensurate with the extraordinary costs of the current crisis”. The outlines of such a fund are still to be discussed by government leaders during the next European Council meeting on April 23.