On the backdrop of the Corona crisis, Financial Risk and Stability Network drafted a solidarity action appeal letter to call for common bold support measures at EU and Euro area levels. The non-profit organisation has been calling scientists, experts and citizens to sign the appeal. We received some positive feedback to the appeal letter. But there were not enough signatories to publish and circulate. Meanwhile the European leaders agreed on an European Recovery Fund and the multiannual financial framework for 2021 to 2027 in July 2020.
Financial Risk and Stability Network
2 April 2020
Emergency Cause Corona Crisis
SOLIDARITY ACTION APPEAL LETTER
The Corona crisis puts the European Union and the Euro area at risk. It deepens the gulfs between northern and southern Euro area countries and jeopardises to cause the break-up of the European Union. The pandemic has already triggered emergency issues regarding urgent needed health materials, medical personnel, financial support and state aid. Therefore, bold solidarity action is needed.
We appreciate the measures taken so far by the European Commission, the European Central Bank and EU member states. But this is not enough looking at the disastrous human and economic effects of the Corona crisis. In particular, an agreement of Euro area member states on so called Corona bonds or appropriate corresponding common financial assistance like a common financial resources fund or a centralised fiscal capacity in addition to economic support measures have to be implemented as soon as possible.
The Corona pandemic is a common shock, which has to be addressed by common and coordinated fiscal responses at EU levels between member states. The effects and impact of the crisis could trigger a sovereign debt crisis and unprecedented unemployment as well as insolvency rates. Although the interest rates for bond issuances are still very low at present, with high rising debt levels in the course of the pandemic, some Euro area countries will face higher spreads and speculation waves. These could finally break up the Euro area. Given these risks, there is indeed a case for sharing part of the fiscal and economic costs, and to alleviate the hardship of troubled citizens.
The initially inappropriate debates and controversies at EU level on ways to deal with the situation unveiled once more the obstacles and contentious positions between EU member states. It deepened the political and emotional gaps, leaving bitterness in southern European countries. This adds to the destabilizing effects in times of severe economic downturns and aggravating inequality issues caused by the crisis development in an already fragile state of the European Union.
We are convinced that the European Union and the project of the Euro are vital common public goods that have to be maintained. They should not be put at risk in these extraordinary times. It has to be a project of solidarity as well, since solid member states are able to deliver and engage much more. The seriousness of the situation is abundantly clear to all, and it is high time that policymakers agree on the course and means to tackle the crisis impacts and set party-driven political reservations and purposes aside.
Global challenges and the crisis situation we are currently experiencing cannot be addressed at national levels in a progressive and solution-oriented way. The Corona crises is already being misused by governments of some member states to dismantle democracy even more and to cut down civil rights and justice. More courage, stronger political will and unambiguous political stance is urgently needed at policymaking levels to address the devastating effects of the pandemic and to keep the European Union in balance in these extraordinary times.
We call on the European institutions, the heads of states and governments and the finance ministers to act wisely, amply and respectfully for the sake of the European Union, its citizens and its cohesion. The following issues have to be addressed:
- To provide and direct medical materials and support to the most severely hit regions in the European Union and to counteract withholdings of medical equipment for national interests or profit.
- To agree to the temporary issuance of common guaranteed Corona bonds and/or to implement appropriate fiscal aid and economic relief measures at the EU level, such as a centralised common fund or a fiscal capacity to provide a common fiscal backstop.
- To support the most affected social and low-income groups, as well as medical services, by providing personnel with financial support programs and to counteract financial hardships, inequality and democratic breakdowns.
- To take significant and substantial preparation to address a possible renewed sovereign debt crisis, as well as a financial crisis in the EU/Euro area and to arrange ample preparatory action programs for dealing with such a situation.
In the medium term:
- To revoke the easing of regulatory capital, liquidity and supervisory requirements for financial institutions granted due to the Corona crisis and to resist general financial deregulation calls from the financial industry.
- To complete the banking union with an agreement on a European deposit insurance scheme, to prevent large-scale bank bailouts in the aftermath of the pandemic and to make bank resolution workable by addressing existing obstacles to orderly resolution and market exits.
- To evaluate and enhance the existing crisis management framework in the EU including institutional settings, coordination and mandates of European institutions and authorities in order to be better prepared for serious crisis situations.