How Europe is funding its pandemic recovery with multi-billion dollar bond sales
This episode of Real Economy examines what the EU stimulus packages mean for jobs and businesses across Europe and how they are funded by the issuance of billions of euros in bonds.
Protect jobs in Europe
It is estimated that between 1.5 and 2.5 million businesses in Europe were able to keep their employees during the pandemic – thanks to the European Commission’s SURE initiative, which supports government leave programs.
In the 18 countries that have received SURE funds, it has helped 25 to 30 million workers keep their jobs during the pandemic.
SURE’s goal has been to protect jobs during the crisis. The next step is the EU stimulus package – known as Next Generation EU – which is expected to follow in the coming weeks.
How are EU stimulus packages financed?
The EU’s SURE and NextGenerationEU stimulus programs are helping countries build more resilient economies after the COVID-19 pandemic.
To finance them, the European Union issues up to 850 billion euros (900 billion euros at current prices) of bonds over the next 5 years. Borrowing at European level means that all the economies of the EU countries benefit from it.
This is the first time that the EU has borrowed on such a large scale, making it the new major player in the sovereign bond market.
It also helps to strengthen the international position of the euro.
The EU’s high credit rating, along with its ability to secure debt, means investors are more confident in buying EU bonds. They include social and green bonds, which means the funds serve a genuinely social or green purpose and will be repaid by 2058.
How do recovery packages help businesses?
Slovenia is one of 18 countries receiving SURE funding – receiving â¬ 1.1 billion in emergency loans.
Greg Yurkovich returned to his native Slovenia in 2010 after living in the United States, to open two pizzerias in the capital Ljubljana.
A year after opening his second restaurant, Greg had thirty staff – then the pandemic hit and the first lockdown, with his employees having to stay home for six weeks.
Greg wanted to keep his staff and skills as long as possible.
âThe point was, we had to keep these people employed for various reasons. Again, our obligation, but also in case we opened. What if these people are made redundant? How do we maintain continuity? of the company? “, Greg Yurkovich, Managing Director and Chief Executive Officer of Pop’s Place, said.
Slovenian government subsidized employers like Greg to keep their staff on the payroll until reopening, in part thanks to the EU’s SURE program.
Investor interest in European bonds
Guillaume Menuet, senior eurozone economist at Citigroup, explained how it could work.
âWe expect that for every euro spent, we will be able to recover two, three, four euros within five or ten years, depending on the investment choices.
âThis loan will naturally be repaid by increased economic growth, but also by new forms of taxation, which the EU is currently putting on the agenda.
“We will wait and see what the next EU budget brings before we worry about it,” he added.
Interview with Johannes Hahn, the European Commissioner for Budget and Administration.
Naomi Lloyd of Real Economy spoke to Commissioner Hahn about the stimulus packages – and started by asking him when he thinks the commission will start borrowing for the fund.
âFrom our internal point of view, we are ready for the beginning of June. And I hope indeed and nothing calls into question this objective to date, we can start going to the financial markets at the beginning of the month. second half., “he said.
On the challenges ahead
Asked about possible challenges to the schedule – the German court ruling declaring it unconstitutional and Poland threatening not to ratify it.
“I am rather confident that this will also be confirmed by Karlsruhe – but above all it is important that they lift their reservations. And I am also convinced here that this will be done in due course. If you are in politics, it must be done. be optimistic and I’m generally right to be, âreplied Hahn.
On investor interest in the next generation EU
âOverall there was huge interest and there is huge interest because they also see the euro and the European Union as a safe asset, as a safe haven. And that’s very important in times like this. There is also apparently a strong interest in creating some kind of alternative to the dollar, not so as to be competitive, but to really have alternatives, âHahn added.
On the impact on the international world of the euro
âWell, I think the impact will be huge. I mean, we’ll be issuing at least over $ 800 billion – in euro-denominated bonds – and that’s on the scale we’ve never done in the past. , and this will certainly have a huge impact on the role of the euro. Also in the capital market around the world – will strengthen the euro as a true alternative currency. And that is why it also has an economic impact but also very strong political â, concluded Hahn.