EU debates new pandemic-type loans to deal with crisis

Following Monday’s debates, an op-ed written by Paolo Gentiloni and Thierry Breton, EU commissioners for economy and internal markets respectively, was published in German newspaper Frankfurter Allgemeine.

In it, they called for more solidarity and, notably: a new pandemic-type loan instrument to help less wealthy countries weather energy-driven inflation.

Crisis loans

“We are not blaming member states for supporting their economy,” Gentiloni said when asked about the plan at Tuesday’s meeting of finance ministers in Luxembourg. “But if we want to avoid fragmentation, I think we need a higher level of solidarity. We need to put in place a ‘SURE’ mechanism.”

The Support to mitigate Unemployment Risks in an Emergency (SURE) mechanism was set up in 2020 in response to the COVID-19 pandemic as a €100bn temporary loan assistance to help countries pay for job support programmes or loan assistance.

Sure was financed with social bonds issued by the commission underpinned by all member states, resulting in capital markets charging near-zero interest rates on ten and 20-year bonds.

Financing conditions typically only available to the wealthiest EU members could then be passed on to all EU countries — with Spain and Italy being the biggest beneficiaries with €21.3m and €27.4m, respectively. As of 2022, a total of €91.8bn in low-interest loans have been disbursed to 19 member states.

Gentiloni and Breton now propose to “be inspired by the Sure program” and set up a similar system for defence and energy spending, which they described as projects of “common European interest.”

This would enable countries with less “budgetary leeway” to shield companies and households from high energy prices — a burden which, as some commentators have pointed out, is intensified by Germany’s decade-long policy to expand dependence on Russian gas.

Loans, not grants

Unlike Europe’s €800bn pandemic fund, which partly consisted of grants underwritten by shared EU debt, Sure consists only of loans.

This could make a similar mechanism more acceptable to frugal governments like the Netherlands, Sweden and Germany, who oppose new shared EU debt associated with grants.

In an interview following the debate on Tuesday, French finance minister Bruno Le Maire outlined a similar system based on loans.

“We are not talking about common debt as we know this would raise issues with some member states,” he said. “But there is a need to decide [on a plan] now. Not in the coming weeks, but the coming days.”

But it is not yet certain whether a loan-based plan will be supported by a majority of countries.

“Opinions still vary”

“I can confirm that opinions on further EU-wide financing mechanisms still vary,” executive vice president Valdis Dombrovikis said on Tuesday.

Wealthier EU members, including Sweden and the Netherlands, prefer to first use the existing €225bn pandemic loans, which have not yet been claimed.

But finance ministers on Tuesday could not agree on how to divide these funds. Other EU reserves (RepowerEU) countries can employ to replace Russian gas imports are not allowed to be used for income support for households and businesses.

This leaves a financing gap between affluent and less moneyed countries.

European leaders will meet again in Prague on Friday to further discuss the war in Ukraine, energy prices and the economic situation.