The COVID-19 pandemic represents a major shock to the global and European economy. It is the first time that the world economies are facing an economic and financial crisis that was not caused by an underlaying distortion of market mechanisms but rather as a direct result of health-related economic slowdown.
As a consequence of this new phenomenon, little or no international coordination as of yet has taken place, hence, unlike the events of 2008 crisis which closely harmonized the fiscal and policy response among major economic players, under the leadership of the United States and the European Union, this crisis so far has shown a glaring absence of the coordinating role of the major players and a resulting subsequent reversion to the haphazard national response measures. The economic consequences of such lack of coordinating measures are major, and are felt through both supply and demand-side channels.
It is clear that more targeted, harmonised and bold response by authorities is necessary:
- Ample national funds need to be provided to national health services.
- Targeted measures to support individuals (such as the self-employed), companies and the local communities most affected should be put in place or reinforced.
- Broad macroeconomic insurance needs to be provided because targeted measures will not cover the many second-round effects of the shock. To alleviate financial and cash-flow constraints, and to provide incentives to preserve employment, we recommend all EU member states agree to halve companies’ social security contributions for three months, or cut the payroll tax. Such measures could amount to support of some 2.5 percent of GDP and would be funded by increased national deficits.
- The European Central Bank should provide abundant liquidity, increase swap lines to ensure sufficient dollar liquidity and increase its sovereign-bond purchase programme to prevent distress in sovereign bond markets.
Below is the review of the present day responses of the world’s major economies to the spread of the virus. One must keep in mind that due to the ever changing epidemiological conditions and economic situation, the economic tool box at the disposal is being constantly readjusted. One may hope that with the further coordination of economic stimuli, the effectiveness of the epidemiological, economic and social policy tools will increase with time.
EUROPEAN UNION[1]
COVID-19 is a severe public health emergency especially for already affected vast numbers of the citizens of the EU Member States. As a result, the EU Commission has taken a block’s coordinating role and presented a set of instruments meant to mitigate the socio-economic impact of the COVID-19 outbreak, centered on a European coordinated response.
The Commission will use all the instruments at its disposal to mitigate the consequences of the pandemic, in particular focusing on 3 main areas
– To ensure the necessary supplies to Member States’ health systems by preserving the integrity of the Single Market and of production and distribution of value chains;
– To support people so that income and jobs are not affected disproportionally and to avoid permanent effect of this crisis;
– To support firms and ensure that the liquidity of EU financial sector can continue to support the economy
– And to allow Member States to act decisively in a coordinated way, through using the full flexibility of EU State Aid and Stability and Growth Pact Frameworks.
- State Aid Framework Flexibility
The main fiscal response to the Coronavirus will come from Member States’ national budgets. EU State aid rules enable Member States to take swift and effective action to support citizens and companies, in particular SMEs, facing economic difficulties due to the COVID-19 outbreak.
Member States can design ample support measures in line with existing EU rules. First, they can decide to take measures, such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions. In addition, Member States can grant financial support directly to consumers, for example for cancelled services or tickets that are not reimbursed by the operators concerned. Also, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid. Article 107(2)(b) TFEU enables Member States to compensate companies for the damage directly caused by exceptional occurrences, including measures in sectors such as aviation and tourism.
Currently, the impact of the COVID-19 outbreak in Italy is of a nature and scale that allows the use of Article 107(3)(b) TFEU. This enables the Commission to approve additional national support measures to remedy a serious disturbance to the economy of a Member State.
The Commission’s assessment for the use of Article 107(3)b for other Member States will take a similar approach. The Commission is preparing a special legal framework under Article 107(3)(b) TFEU to adopt in case of need.
The Commission stands ready to work with all Member States to ensure that possible national support measures to tackle the outbreak of the COVID-19 virus can be put in place in a timely manner.
- European Fiscal Framework Flexibility
The Commission will propose to the Council to apply the full flexibility provided for in the EU fiscal framework so that they can implement the measures needed to contain the coronavirus outbreak and mitigate its negative socio-economic effects.
First, the Commission considers that the COVID-19 pandemic qualifies as an “unusual events outside the control of government”. This allows accommodating exceptional spending to contain the COVID-19 outbreak such as health care expenditure and targeted relief measures for firms and workers.
Second, the Commission will recommend adjusting the fiscal efforts required from Member States in case of negative growth or large drops in activity.
Finally, the Commission stands ready to propose to the Council to activate the general escape clause to accommodate a more general fiscal policy support. This clause would – in cooperation with the Council – suspend the fiscal adjustment recommended by the Council in case of a severe economic downturn in the euro area or the EU as a whole.
- Ensuring solidarity in the Single Market
It is clear that the response to the epidemic could only be successful with a Europe-wide coordinated action allowing for an effective management of this public health emergency. Close Member State coordination is essential key in this crisis, in particular to ensure that essential goods, necessary to mitigate the health risks of the outbreak, can reach all those in need. It is essential to develop policy mechanisms to ameliorate common approaches in order to secure production, stocking, availability and rational use of medical protective equipment and medicines in the EU, openly and transparently, rather than taking unilateral measures that restrict the free movement of essential healthcare goods.
The Commission is therefore taking all necessary steps to that end including by providing guidance for Member States on how to put in place adequate control mechanisms to ensure security of supply, and by launching an accelerated joint procurement procedure for these goods and issuing a recommendation on non-CE-marked protective equipment.
The COVID-19 outbreak is having a major impact on EU-wide transport systems, given the close interlink of European supply chains, supported by an extensive network of freight services on land, at sea, and airborne. The Commission is working with Member States to ensure the flow of essential goods across land borders. The international and European aviation industry has been particularly hit. As announced by President von der Leyen on 10 March, to help ease the economic and ecological impact of the outbreak, the Commission is proposing targeted legislation to temporarily alleviate airlines from the “use-it-or-lose-it” rule – whereby air carriers must use at least 80% of their airports slots within a given period in order to keep them within the corresponding period of the next year.
Finally, the Commission is liaising with Member States, international authorities and key EU professional associations to monitor the impact of the crisis on the tourism sector and coordinate support measures.
- Mobilising the EU budget
To bring immediate relief to hard-hit SMEs, the EU budget will deploy its existing instruments to support these companies with liquidity, complementing measures taken at national level. In the coming weeks, EUR1 billion will be redirected from the EU budget as a guarantee to the European Investment Fund to incentivise banks to provide liquidity to SMEs and midcaps. This will help at least 100,000 European SMEs and small mid-caps with about EUR 8 billion of financing. We will also provide credit holidays to the existing debtors that are negatively affected.
- Alleviating the impact on employment
We need to protect workers from unemployment and loss of income to avoid permanent effect. The Commission stands ready to support Member States in this, promoting, in particular short-time work schemes, upskilling and reskilling programmes that have proven effective in the past.
The Commission will furthermore accelerate the preparation of the legislative proposal for a European Unemployment Reinsurance Scheme aiming at supporting Member State policies that preserve jobs and skills.
Moreover, the Coronavirus Response Investment Initiative will facilitate the deployment of the European Social Fund – a fund geared towards supporting workers and healthcare.
The European Globalisation Adjustment Fund could also be mobilised to support dismissed workers and those self-employed under the conditions of the current and future Regulation. Up to EUR 179 million is available in 2020.
- Coronavirus Response Investment Initiative
Under this new initiative, the Commission proposes to direct EUR 37 billion under Cohesion policy to the fight against the Coronavirus crisis. To this effect, the Commission proposes to relinquish this year its obligation to request Member States to refund unspent pre-financing for the structural funds. This amounts to about EUR 8 billion from the EU budget, which Member States will be able to use to supplement EUR 29 billion of structural funding across the EU. This will effectively increase the amount of investment in 2020 and help to front-load the use of the as yet unallocated EUR 28 billion of cohesion policy funding within the 2014-2020 cohesion policy programmes. The Commission calls upon the European Parliament and the Council to swiftly approve this proposal, so that it can be adopted within the next two weeks.
In addition, the Commission is proposing to extend the scope of the EU Solidarity Fund by also including a public health crisis within its scope, in view of mobilising it if needed for the hardest hit Member States. Up to EUR 800 million is available in 2020.
- Integrated Political Crisis Response (IPCR)[2]
Understanding that bloc’s coordination of its response is a key to success, the Council has decided on 2 March 2020 to escalate the Integrated Political Crisis Response (IPCR) arrangements from information sharing mode to full activation mode.
IPCR full activation allows for an increased focus on identifying major gaps across sectors and elaborating concrete EU response measures at presidency-led roundtables. These crisis meetings bring together representatives of the office of the President of the European Council, the European Commission, the European External Action Service (EEAS), affected member states and other relevant parties. Roundtable participants prepare, develop and update proposals for actions to be discussed and decided upon by the Council.
The European Central Bank (ECB) announced new support measures and suspended certain constraints imposed on banks in the face of the “major shock” of the coronavirus pandemic, but it left interest rates unchanged.
It will provide loans to commercial banks to support their lending to those most affected by the spread of the coronavirus, in particular small and medium-sized enterprises.
Those ECB loans will be cheap. The interest rates are set by a rather convoluted formula, but for some of these loans, it could be as low as minus 0.75%.
This does not create the kind of problem the banks have with a negative deposit rate. The commercial banks would be paid to borrow from the ECB, which wants them to use the money to expand their lending to businesses.
This is a common theme in government and central bank responses to the current situation.
SMEs are especially exposed if their revenue is interrupted by corona virus measures. Although SMEs revenue flow may be disrupted or deliveries of raw materials interrupted, they may still have payments to make to employees, landlords, suppliers or tax agencies. So availability of short-term credit is seen by the ECB as a key to SME’s short and long term survivability.
The ECB is also expanding its quantitative easing programme by a total of €120m. It involves buying financial assets with newly created money. The ECB is emphasising the private sector part of the programme – it also buys government bonds.
The ECB argues this will “support favourable financing conditions for the real economy”, which means it will help ensure that credit for households and businesses is available and cheap.
It may also be ready to increase its purchases of sovereign debts and that it would not tolerate an “undesirable” increase in the costs of financing states.
GERMANY[3]
Germany pledged to spend whatever necessary to protect its economy and the European Commission is ready to green-light widespread fiscal stimulus for euro nations as policy makers aimed to calm the markets with a decisive response to the coronavirus.
KfW, the German state bank, can lend as much as €550 billion ($610 billion) to companies to ensure they survive the pandemic and shield their workers from its impact. Germany is also prepared to take on additional debt and will consider full-blown fiscal stimulus if the situation worsens.
As part of efforts to cushion the virus impact, Germany’s lower house of parliament earlier Friday approved enhanced government powers to provide financial support to companies forced to halt work and send staff home.
The law, which would allow affected firms easier access to funds for paying furloughed employees, was fast-tracked through the legislative process, reviving measures that helped Germany avoid mass layoffs during the 2008 financial crisis. The proposal will also include allowing companies to defer billions of euros of tax payments.
ITALY[4]
Italian Prime Minister Giuseppe Conte’s government is ready to spend as much as 25 billion euros on stimulus measures to shield the Italian economy from the outbreak of the coronavirus.
The first package worth about 12 billion euros. The rest will be a reserve to pay for any further measures, The government will ask parliament to increase the country’s deficit targets by 20 billion euros.
The measures will include:
- Stepped up spending for the health-care sector.
- Measures to cover extraordinary redundancies related to coronavirus.
- Payments to offset costs of childcare.
- Postponement of some tax deadlines including value added tax.
- Suspension of mortgage payments for some workers, including autonomous ones.
- Additional funding for the airline sector following a collapse in travel.
- State guarantees on bank financing and loans to firms to boost liquidity amid the emergency.
Measures also include a package of loan guarantees to avoid a credit crunch. A state guarantee fund for small and medium enterprises will be boosted by 1 billion euros and state lender Cassa Depositi e Prestiti will be allowed to guarantee at least 10 billion euros in loans through a 500 million-euro Treasury Fund
Additionally, the Government is already planning a Recovery Plan as the new Stimulus Package will not be enough to sustain the economy since the damage from the virus to Italian companies will be “serious and widespread,”
On 17 March 2020, the Council of Ministers, on a proposal from President Giuseppe Conte, the Minister of Economy and Finance, Roberto Gualtieri, the Minister of Economic Development, Stefano Patuanelli, the Minister of Labor and Social Policies, Nunzia Catalfo and the Minister of Health, Roberto Speranza has approved a decree-law introducing measures to strengthen the national health service and economic support for families, workers and businesses connected to the epidemiological emergency from Covid-19., so called ‘Cure Italy’ Decree-Law.[5]
FRANCE[6]
The French Ministry of Economy estimated Sunday at “several tens of billions of euros as the cost of state aid to economic actors affected by the epidemic, after the announcement of the closure of all schools and universities, most shops and cultural places and a reduction in public transport.
Companies are called upon to allow their employees to work remotely as much as possible, but large groups have announced a reduction in their activity.
The State is committed to taking charge of the compensation of employees forced into partial unemployment to stay at home and all companies can postpone without justification the payment of taxes and contributions due in March. The application of the unemployment insurance reform, initially scheduled for April 1, has been postponed to September 1.
Additional immediate business support measures include:
- Extending payment deadlines for social and other taxes
- In the most difficult situations, direct tax rebates can be approved on case by case basis;
- Support from the State and the Banque de France (credit mediation) to negotiate with his bank a rescheduling of bank credits;
- The mobilization of Bpifrance to guarantee bank cash lines that companies may need because of the epidemic;
- Ability to maintain employment in companies through the simplified and reinforced partial unemployment system;
- Support for commercial arbitration by business mediator in case of a conflict with customers or suppliers;
- State and local recognition of Coronavirus as a case of ‘force majeure’ for their public procurement. Consequently, for all state and local public contracts, the delay penalties will not be applied.
UNITED KINGDOM[7]
The Bank of England (BoE) announced on March 11 a cut of half a point in its key rate, a relaxation of the solvency conditions imposed on the banks and the launch of a new device of financing of the small companies.
Finance Minister Rishi Sunak completed this monetary component by announcing an economic recovery plan of 30 billion pounds (33.5 billion euros) during the presentation of the first British budget post -Brexit.
Measures to mitigate the effect of the coronavirus outbreak include:
- Statutory sick pay for “all those who are advised to self-isolate” even if they have not displayed symptoms
- Business rates for shops, cinemas, restaurants and music venues in England with a ratable value below £51,000 suspended for a year
- A £500m “hardship fund” to be given to local authorities in England to help vulnerable people in their areas
- A “temporary coronavirus business interruption loan scheme” for banks to offer loans of up to £1.2m to support small and medium-sized businesses
- The government will meet costs for businesses with fewer than 250 employees of providing statutory sick pay to those off work because of coronavirus
- Plans to make it quicker and easier to get benefits for those on zero hours contracts
- Benefit claimants who have been advised to stay at home will not have to physically attend job centres
SWEDEN [8]
The Swedish government presented on March 11 a collective budget estimated at three billion crowns (280 million euros). The government has already pledged an additional five billion crowns to local communities, and Finance Minister Magdalena Andersson said on Wednesday that it could further step up its financial effort if necessary.
NORWAY[9]
The Norwegian central bank unexpectedly lowered its main policy rate from 1.5% to 1.0% on Friday in an attempt to reduce the economic impact of the new coronavirus epidemic.
The next Norwegian central bank rate decision was normally scheduled for March 19.
The Bank of Norway has also decided to lower the capital surcharge imposed on banks for their credit activities from 2.5% to 1.0%.
The Government also established 3 phase response to the crisis. Phase 1 has already been introduced, including:
- Prioritisation of immediate measures to avoid unnecessary layoffs and bankruptcies in viable companies that face an abrupt fall in income. To that end, the government has today announced the following measures:
- Measures in the health care system to handle the acute crisis. This include securing necessary equipment and personnel.
- Reduce the number of days that employers are obliged to pay salary to workers at temporary lay-offs, from 15 to 2 days. This will be a temporary measure to improve companies’ liquidity and help avoid massive lay-offs.
- Remove the three waiting days between the period when employers have to provide salary to workers in temporary layoffs and the period when the workers are entitled to daily unemployment benefits. This will reduce the loss of income for workers.
- Change corporate tax regulations so that companies that are lossmaking can re-allocate their loss towards previous years’ taxed surplus.
- Change the tax regulations so that owners of lossmaking companies can postpone payments of wealth tax. This will reduce the need for firms to provide dividends to owners to cover the wealth tax.
- Suspend the tax on air passengers for flights in the period from 1 January 2020 until 31 October 2020.
- Suspend payments of aviation charges until 31 June 2020.
- Strengthen support for skills upgrade and in-house training for companies affected by the virus outbreak, through increased grants to the counties.
- Increase allocation to municipalities that will have large excess expenses due to the virus outbreak.
- Make sure that pension rights are not affected negatively for retired health personnel that returns to service in connection with the corona outbreak.
THE UNITED STATES[10]
The Federal Reserve announced on Sunday a further surprise cut in interest rates by 100 basis points, the resumption of its purchases of securities on the markets to the tune of 700 billion dollars (625 billion euros) and coordinated action with five other major central banks to provide dollar liquidity to the markets.
The Federal Reserve also called on commercial banks to tap into the hundreds of billions of dollars in equity and cash accumulated since the financial crisis to increase lending to businesses and households.
The Administration also directed the Treasury Department to allow for deferment of tax payments without interest or penalty, for certain people and businesses affected by the coronavirus crisis. This request may provide more than US$ 200 billion in additional cash to the economy.
The Federal Small Business Administration was also directed to providing all needed capital and liquidity to the affected companies. The Administration has also enacted an $ 8.3 billion ($ 7.3 billion) emergency plan to help federal and local authorities in the United States to fight the virus and notably develop a vaccine.
Additionally, President Trump was forced to issue the Declaration of a National Emergency, a rarely used presidential power, allowing the Federal Emergency Management Agency to assist state and local governments and coordinate the nation’s response to the crisis.
The US House of Representatives has also overwhelmingly passed legislation to provide economic relief to Americans affected by coronavirus after President Donald Trump declared that he would support the legislative proposal.
The Families First Coronavirus Response Act was adopted following two days of around-the-clock negotiations between Democratic leaders and Treasury Secretary Steve Mnuchin.
According to House Appropriations Committee Democrats, the legislation:
- Requires private health plans to cover coronavirus testing at no cost, and allocates $1 billion for testing for uninsured Americans
- Ensures employers with fewer than 500 employees and government employers offer two weeks of paid sick leave. The provision expires at the end of the year
- Requires those same kinds of employers to provide up to 3 months of paid family and medical leave for people forced to quarantine due to the virus or care for children or family members because of the outbreak
- Offers payroll tax credits for employers providing those leave benefits
- Puts $1 billion into emergency state grants for providing unemployment insurance benefits. It includes $500 million for staffing and logistical costs for states, with an additional $500 million reserved for states that see a 10% increase in unemployment
- Puts $500 million into food assistance for low-income pregnant women and mothers with young children, $400 million into local food banks and $250 million into a senior nutrition program
- Suspends the Supplemental Nutrition Assistance Program work requirements for the duration of the crisis.
CANADA[11]
The Bank of Canada lowered its main policy rate from 1.75% to 1.25%. We have to go back to the financial crisis in 2009 to find a drop of 50 basis points from the Canadian central bank.
Under the plan, businesses experiencing a downturn due to the virus will be eligible for employee income support for up to 76 weeks. Normally, Canada’s work-share program provides compensation to struggling employers for up to half that length of time. The program allows companies to keep workers employed and paid even if worker hours are reduced.
The plan also waives the mandatory one-week waiting period on Employment Insurance (EI) claims, allowing individuals who are in quarantine or who have been directed to self-isolate to receive pay in the first week of their claim. The federal government noted it is exploring additional measures to support Canadians who may not be eligible for EI sickness benefits.
Provinces and territories will receive $500 million for critical health system needs, such as access to testing and enhanced monitoring. Federal public health measures — including enhanced surveillance, increased testing and support for First Nations and Inuit communities — will also receive $100 million, in addition to the initial $50 million that has already been committed.
Canadian coronavirus research efforts have been allotted $275 million — an additional investment that is 10 times the size of the federal government’s earlier $27 million research commitment.
Beyond the funding announced on Wednesday, the federal government has said it will “act swiftly” to stimulate the Canadian economy through federal lending agencies, such as the Business Development Bank of Canada and Export Development Canada. According to the government, the partnership between federal financial Crown corporations and private sector financial institutions provided $11 billion of additional credit support to 10,000 firms during the 2008-2009 financial crisis.
JAPAN[12]
The Bank of Japan announced Monday that it will double its purchases of index funds (ETFs) to around 12 trillion yen (100 billion euros). It will also increase its purchases of real estate investment funds, (J-REIT), to 180 billion yen per year and provides an envelope of 2,000 billion for additional purchases of treasury securities and corporate bonds.
Last week, the Japanese government unveiled a second set of budget measures representing spending of around 3.8 billion euros, which will be geared towards supporting small and medium-sized businesses.
CHINA[13]
The People’s Bank of China (PCB) announced on March 13 a further reduction in the reserve requirements imposed on certain banks in the country in order to free up 550 billion yuan (70.3 billion euros) of liquidity to support the weakened economy. by the coronavirus epidemic.
On March 5, Beijing released 110.48 billion yuan (14.3 billion euros) to finance the fight against the epidemic.
The authorities have also increased their financial support to regions affected by the coronavirus and urged banks to relax their credit conditions for businesses exposed to the economic consequences of the epidemic.
INDIA[14]
The Indian central bank (RBI) plans to inject new liquidity into the financial system through new long-term refinancing operations (LTRO), government officials told Reuters.
An official said the RBI could inject up to 1,000 billion rupees (12 billion euros) into the initiative, which is expected to be launched in early April.
SOUTH KOREA[15]
The South Korean government has announced a budget plan of 11.7 trillion won (8.63 billion euros) intended notably for the health system and children. A total of 10.3 trillion won of sovereign bonds will also be issued this year to finance this plan.
Seoul also tightened the rules on short sales in the financial markets for three months.
AUSTRALIA [16]
The Australian Government has announced an economic response totaling AU$17.6 billion across the forward estimates to protect the economy by maintaining confidence, supporting investment and keeping people in jobs. Additional household income and business support will flow through to strengthen the wider economy.
The Government’s economic response targets four key areas:
- Delivering support for business investment
- Enhancing the instant asset write-off
Lifting the threshold to $150,000 (from $30,000) and expanding access to businesses with aggregated annual turnover of less than $500 million (up from $50 million) until 30 June 2020. The threshold applies on per asset basis, so eligible businesses can immediately write-off multiple assets.
- Backing business investment
Offering businesses, a 15-month investment incentive to support their business, by accelerating depreciation deductions. Key features of the incentive include:
Deduction of 50 per cent of the cost of an asset, with existing depreciation applying to the balance of the asset’s cost.
Available to businesses with aggregated turnover below $500 million, purchasing certain new depreciable assets.
- Supporting apprentices and trainees
Helping businesses retain apprentices and trainees by offering a wage subsidy of 50 per cent of the apprentice’s or trainee’s wage for nine months. The subsidy of up to a maximum of $21,000, will be available to businesses employing fewer than 20 full-time employees who retain an apprentice or trainee, or, where a small business is not able to retain an apprentice, the subsidy will be available to a new employer. This will support up to 70,000 small businesses employing around 117,000 apprentices.
- Cash flow assistance for employers
Helping small and medium businesses with aggregated annual turnover under $50 million to cover the costs of employee wages and salaries equal to 50 per cent of PAYG withheld for businesses that withhold tax, with a minimum of $2,000 and a maximum of $25,000 over six months. Businesses that pay salary and wages but are not required to withhold tax will also receive the minimum payment of $2,000. This will be a tax-free payment, benefiting around 690,000 businesses employing 7.8 million people.
- Stimulus payments to households to support growth
The Australian Government will provide financial assistance to around 6.5 million lower-income Australians in response to the Coronavirus.
One-off payments of $750 will be paid to around 6.5 million lower-income Australians, including pensioners, other social security and veteran income support recipients and eligible concession card holders. This is to help them through this uncertain time and support economic activity.
The one-off payment will be paid from 31 March 2020.
- Assistance for severely affected regions
The Government has set aside an initial $1 billion allocation to support those regions and communities that have been disproportionately affected by the economic impacts of the Coronavirus, including those heavily reliant on industries such as tourism, agriculture and education.
The $1 billion will be available for distribution through existing or newly established mechanisms as soon as practicable.
The Australian Tax Office (ATO) will also provide administrative relief for certain tax obligations (similar to relief provided following the bushfires) for taxpayers affected by the Coronavirus outbreak, on a case by case basis.
The ATO will look at ways to enhance its presence in significantly affected regions to make it easier for people to apply for relief.
NEW ZEALAND[17]
The New Zealand central bank cut its key interest rate by 75 basis points on Monday to bring it down to 0.25%.
MULTILATERAL FUINANCIAL INSTITUTIONAL RESPONSE
On March 15, 2020, the central banks of Canada, the U.K. Japan, the U.S., Switzerland, and the European Central Bank all agreed to lower the price of U.S. dollar liquidity swap line arrangements. These are a type of foreign currency swap, that helps central banks ensure there are dollars available for people and businesses who want to take out loans denominated in dollars, as opposed to the local currency. By decreasing the price of these swaps, it makes it easier and cheaper to borrow money in dollars outside the U.S.[18]
On March 4th, the International Monetary Fund made $50 billion in loans available to deal with the coronavirus, including $10 billion of zero-interest loans to the poorest IMF member countries. On March 16, the IMF said it, “stands ready to mobilize its $1 trillion lending capacity to help our membership.” In the same statement, the IMF said it has $200 billion in current lines of credit, some of which could be used for this crisis, and that they have “received interest from about 20 countries and will be following up with them in the coming days.” It also mentioned that it is aiming to boost its debt relief fund to $1 billion from its current level of $400 million[19]
On March 3, the World Bank announced an initial package of up to $12 billion in loans for countries to help cope with the effects of the coronavirus. $8 billion of the funding is new loans and the remaining $4 billion is redirected from current lines of credit.[20]
ANNEX 1
LAW-DECREE, COUNCIL OF MINISTERS OF THE ITALIAN REPUBLIC 23.03.2020 (UNIFFICIAL TRANSLATION)
On 30 January, the World Health Organization (WHO) declared the Coronavirus (COVID-19) epidemic in China to be of public interest of international concern. To implement the precautionary measures following the WHO declaration, on January 31 the Council of Ministers approved the state of emergency, for a period of six months, to allow the issuance of the necessary Civil Protection orders and the allocation of the necessary funds.
To deal with the evolution of the epidemiological situation and the negative implications for the economy, with a first ministerial decree of 24 February, the Ministry of Economy and Finance intervened on the obligations of taxpayers residing in the areas affected by the Decree of the Presidency of the Council of 23 February. The health emergency and the following, necessary, containment actions adopted by the Government to stem the spread of the virus entail important limitations for residents of those areas. The ministerial decree provided initial support: the payment of taxes, withholding taxes and tax obligations for taxpayers and businesses resident or operating in the eleven municipalities affected by the containment measures of Coronavirus were suspended. The suspension also concerns payment cards issued by collection agents and those resulting from executive investigations.
The Government intervened subsequently, closely, with further urgent measures: on 28 February the Council of Ministers passed the decree-law to alleviate the specific consequences of the crisis, both on the business side, which were relieved of the burden of paying taxes, social security contributions, insurance premiums and possibly salaries (through the lay-off, also by way of derogation), both on the household side, with the suspension of taxes and insurance, but also on mortgages and bills. The action of the executive does not stop at these first measures: further interventions are being studied to increase the scope of measures to support the world of work and that of companies, with a further expansion of social safety nets and selective forms of support for ‘economy.
Here are the main measures taken so far by the Government to reduce the impact on the economy of Coronavirus.
Suspensions and fulfilments
In addition to the measures adopted with the Ministerial Decree of 24 February, the DL orders the suspension of further obligations
The terms relating to the 2020 pre-filled tax return are modified and extended. In particular:
- from 2021 to 2020 the commencement of the new provisions for tax assistance and for the pre-filled, which the Tax Decree 2019 deferred to 30 September compared to 23 July (for the presentation of the Model 730 and for the presentation of the declaration to the Caf -employees) and 7 July (for submission to your tax substitute);
- until 31 March 2020, the deadlines for submitting single certifications by tax substitutes are deferred; the deadline by which the Revenue Agency makes the pre-filled tax return available to taxpayers is postponed to 5 May 2020. At the same time, the electronic transmission to the Agency of data relating to charges and expenses incurred by taxpayers in the previous year, expiring on 28 February, is carried out by 31 March 2020. Starting from 2021 the Agency makes available to interested parties the data of the unique certifications received. These provisions are valid throughout the national territory.
- The payment terms of the invoices and payment notices issued or to be issued with reference to energy, water, gas and waste utilities are suspended until 30 April 2020. Payments suspended later can be made in installments. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
- The solidarity fund for mortgages for the purchase of the first home is extended, adding a new reason to support the suspension request. This is the Fund established at the Ministry of Economy and Finance, which provides for the possibility, for the holders of a mortgage contract for the purchase of the first home, to benefit from the suspension of the payment of the installments in the event of situations of temporary difficulty . The measure is valid throughout the national territory.
- The Civil Protection Ordinance no. 642 of February 29, 2020 also suspends the installments of mortgages (also a natural person not an entrepreneur) until the end of the state of emergency, opting between the suspension of the entire installment and that of the capital quota only. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
- The terms for the payment of the premiums for compulsory insurance expiring from 23 February to 30 April 2020 and the terms for the payment of insurance premiums expiring between 21 February and 30 April 2020 are suspended.
- The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
Employment
Simplified procedures are introduced to submit an application for the granting of the ordinary salary integration treatment or access to the ordinary allowance for suspension or reduction of working activity. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
Private sector employers, including the agricultural sector, who are not eligible for the income support tools provided for by current legislation, can apply for a wage supplement as a derogation for the duration of the suspension of the employment relationship and in any case for a period maximum of three months. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
Self-employed workers are paid a monthly allowance of 500 euros for three months. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
For employees of the Public Administration, the IT equipment (laptops and tablets) necessary to enable agile work to be carried out is made available. For public employees, it is established that the period of sickness or quarantine or in fiduciary home permanence, is equivalent to the period of hospitalization. These provisions are valid throughout the national territory.
Companies
To ensure liquidity for businesses, zero-rate mortgages lasting no more than 15 years will be granted for the extinction of bank debt. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
The terms for the payment of social security and assistance contributions expiring from 23 February to 30 April 2020 are suspended, without this suspension entailing the application of penalties and interest, while the possibility of using installments is possible.
The subsidized loans granted by the National Agency for the attraction of investments and business development (Invitalia) are suspended for 12 months. The payment deadlines for companies for payments of insurance premiums and chambers of commerce are also suspended. These measures concern the municipalities affected by the urgent measures to contain the contagion from COVID-19.
In support of exporting companies, the SIMEST Fund has increased by 350 million euros for 2020, aimed at supporting commercial penetration programs abroad, through the granting of subsidized rate loans to businesses. The measure is valid throughout the national territory.
With the Guarantee Fund for small and medium-sized enterprises, the European Union and the Italian State support companies and professionals who have difficulty accessing bank credit because they do not have sufficient guarantees. The public guarantee, in practice, replaces the expensive guarantees normally required to obtain a loan. The Legislative Decree refinances this Fund for 50 million by 2020, providing for its intervention free of charge to the maximum extent allowed, 80% in direct guarantee and 90% in reinsurance. The measure concerns the municipalities affected by the urgent measures to contain the contagion from COVID-19.
Tourism
The Law Decree introduces support measures for operators in the tourism-hotel sector and refreshment for travel expenses already incurred in the impossibility of taking part in the trip itself.
In detail, the payment of withholding taxes made for employees, as well as social security and welfare contributions, is suspended until 30 April 2020 for operators in the tourism-hotel business, travel agencies and tour operators operating on the national territory. premiums for compulsory insurance. Suspended payments are made in a single payment by the following 31 May without the application of penalties or interest. These provisions are valid throughout the national territory.
It is also provided that the reimbursement of the trip or of the tourist package (i.e. the issue of a voucher of the same amount) will be paid by the ticket issuer or the travel organizer. Schools will be able to obtain full reimbursement of the sums already paid for educational trips, if suspended between 23 February and 15 March, and then reimburse families without charges on their budgets. The provision regards the subjects unable to complete the trip, according to the modalities foreseen in the decree.
Family and school
For 2020, the Family Charter, which allows access to discounts on the purchase of goods and services also through tariff reductions, is also intended for families with at least one dependent child who reside in the emergency area.
The validity of the current school year is also guaranteed for educational institutions that cannot carry out at least 200 days of lessons, remaining closed following the containment measures of the Covid-19 virus. The measure is valid throughout the national territory.
Justice
In the regions concerned, urgent measures are taken to suspend the deadlines and postpone hearings in civil and criminal proceedings and administrative justice until March 31, 2020. In particular, the following are expected:
- postponement of hearings and suspension of terms in civil and criminal proceedings;
- the application of the remission in facilitated terms, assuming that the failure to comply with the terms is linked to a cause not attributable to the party incurring forfeiture;
- the existence of some exceptions to the law, when participation in hearings is made possible by videoconference or with remote connections;
- the need for prisoners’ interviews with relatives to be carried out, whenever possible, remotely, using equipment provided by the prison administration or by telephone, within the limits established by law.
ANNEX 2
‘CURING ITALY’ LAW-DECREE COUNCIL OF MINISTERS OF THE ITALIAN REPUBLIC 17.03.2020 (UNOFFICIAL TRANSLATION
The decree intervenes with measures on four main fronts and other sectoral measures:
- financing and other measures to strengthen the national health system, civil protection and other public bodies involved in the emergency;
- support to employment and workers for the defense of work and income;
- credit support for families and micro, small and medium-sized enterprises, through the banking system and the use of the central guarantee fund;
- suspension of payment obligations for taxes and contributions as well as other tax obligations and tax incentives for sanitizing workplaces and bonuses for employees who remain in service.
These measures are in addition to those already adopted urgently by the Government to prevent the transitory crisis of economic activities induced by the Covid-19 epidemic from producing permanent effects, such as the definitive disappearance of companies in the sectors most affected. In particular, with previous interventions, tax obligations and payments of contributions and mortgages for the inhabitants of the former “red zone” have been suspended, social safety nets have been opened to subjects who in ordinary conditions do not benefit from them, the methods have been enhanced remote work and support was guaranteed for the tourism sector.
Below, the measures established to enhance the intervention capacity of the Health System, Civil Protection and other public subjects committed to dealing with the health emergency:
– coverage for the 20,000 hires already approved for the national health system is identified;
– the National Emergency Fund is increased overall by 1.65 billion;
– the allocation of resources for overtime for health personnel is increased by 150 million euros for 2020;
– the financing of the increase in ICU beds and in the pulmonology and infectious diseases units (also in derogation of the spending limits), while private structures must make available the medical staff on duty, the premises and their equipment ( for a cost of 340 million);
– the authorization to Invitalia to disburse subsidized loans or non-repayable grants to companies producing medical devices and personal protective equipment (50 million);
– the provision that Civil Protection may order the requisition from public or private subjects of health and medical-surgical devices and of movable property necessary to face the health emergency. The Prefects will be able to order the requisition of hotels or other properties with similar characteristics to house people under medical surveillance (150 million);
– the possibility of increasing medical and nursing military personnel with an exceptional one year stop, while military health services are strengthened. Inail will be able to hire 200 specialist doctors and 100 nurses for a fixed term, while the allocation to the Istituto Superiore di Sanità is increased to meet the needs of epidemiological surveillance (the total of these interventions amounts to 64 million);
– the possibility, if it is not possible to recruit new staff, to retain the staff of the National Health System who would have the requisites for retirement;
– a derogation from the rules for the recognition of professional health qualifications, to allow temporary exercise on the national territory to those who have achieved a healthcare profession abroad, regulated by specific directives of the European Union;
– provisions on the qualification to exercise the profession of doctor-surgeon, with the provision that the achievement of the single-cycle master’s degree in Medicine and surgery will enable the exercise of the profession of surgeon after a suitability judgment on the results relating to skills demonstrated during the practical-evaluation internship carried out within the course of studies;
– the introduction of provisions regarding the advancement of the price in public contracts, aimed at speeding up the purchase and payment procedures for healthcare materials and equipment;
– the allocation of funds for the payment of overtime due to the major tasks related to the emergency for the Police Forces, the Armed Forces, the Penitentiary Police Corps, the National Fire Brigade, the prefectural career staff, that of the roles of the civil administration of the interior and that of the local police, as well as for the sanitization and extraordinary disinfection of the offices, environments and vehicles in use by the same forces, and to ensure the adequate provision of personal protective equipment;
– the allocation of funds for the extraordinary cleaning of school environments;
– the establishment of the Sanitation Fund
[1] https://ec.europa.eu/info/sites/info/files/communication-coordinated-economic-response-covid19-march-2020_en.pdf
[2] https://www.consilium.europa.eu/en/policies/ipcr-response-to-crises/
[3] https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Oeffentliche_Finanzen/2020-03-13-Schutzschild-Beschaeftigte-Unternehmen.html
https://www.ft.com/content/1b0f0324-6530-11ea-b3f3-fe4680ea68b5
https://www.france24.com/en/20200313-germany-unleashes-biggest-post-war-aid-package-against-virus
https://www.pionline.com/markets/germany-lines-600-billion-virus-aid-eu-backs-stimulus
[4] http://www.mef.gov.it/focus/Coronavirus-le-misure-del-Governo-per-ridurre-limpatto-economico/ English translation in ANNEX 1
[5] http://www.salute.gov.it/portale/nuovocoronavirus/dettaglioNotizieNuovoCoronavirus.jsp?lingua=italiano&menu=notizie&p=dalministero&id=4247 English translation in ANNEX 2
[6] https://www.economie.gouv.fr/coronavirus-soutien-entreprises
[7] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/872618/Covid-19_Budget_fact_sheet_FINAL__1_.pdf
https://www.bbc.com/news/uk-politics-51835306
[8]https://www.government.se/press-releases/2020/03/additional-amending-budget-due-to-the-coronavirus/
https://www.government.se/articles/2020/03/economic-measures-in-response-to-covid-19/
[9] https://www.regjeringen.no/en/aktuelt/the-government-acts-to-mitigate-effects-of-the-covid-19-pandemic-on-the-economy/id2693471/
[10] https://www.investopedia.com/government-stimulus-efforts-to-fight-the-covid-19-crisis-4799723#united-states
https://docs.house.gov/billsthisweek/20200309/BILLS-116hr6201-SUS.pdf
https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm
https://www.newyorkfed.org/markets/opolicy/operating_policy_200316
https://www.investopedia.com/terms/s/stimulus-package.asp
[11] https://www.canada.ca/en/public-health/services/diseases/coronavirus-disease-covid-19.html
[12] https://www.boj.or.jp/en/announcements/release_2020/k200316b.pdf
[13] https://www.reuters.com/article/us-china-economy-rrr-cut/china-pumps-79-billion-into-economy-with-bank-cash-reserve-cut-idUSKBN2101B3
[14] https://www.moneycontrol.com/news/business/markets/a-holistic-and-all-out-coordinated-response-to-covid-19-in-india-is-a-must-5040731.html
[15] https://www.reuters.com/article/us-southkorea-economy-budget/south-korea-unveils-9-8-billion-stimulus-to-fight-coronavirus-idUSKBN20R046
[16] https://www.pm.gov.au/media/economic-stimulus-package
[17] https://www.theguardian.com/world/2020/mar/17/new-zealand-launches-massive-spending-package-to-combat-covid-19
[18] https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200315~1fab6a9f1f.en.html
[19] https://www.imf.org/en/News/Articles/2020/03/04/sp030420-imf-makes-available-50-billion-to-help-address-coronavirus
https://blogs.imf.org/2020/03/16/policy-action-for-a-healthy-global-economy/
[20] https://www.worldbank.org/en/news/press-release/2020/03/03/world-bank-group-announces-up-to-12-billion-immediate-support-for-covid-19-country-response
BRDO is an independent regulatory policy advising institution in Ukraine, funded by the European Union under the FORBIZ project and within the framework of EU4Business Initiative.