Rafand - Red Apple Foresight
Covid-19 Period Public Subsidy Rates in European Countries

Covid-19 Period Public Subsidy Rates in European Countries

In 2020, European states eased their COVID-19 challenges and other pandemic action plans to some extent through economic support packages.

These primarily included attempts to restructure loans, such as guarantees for bank loans to small and medium-sized enterprises (SMEs). In 2020, we analyze and objectively reflect the public support packages implemented in Europe’s five largest national economies (as well as Russia) to tackle financial problems.

The countries included in the analysis are France, Germany, Italy, Spain and the United Kingdom.

The data used in the analysis were handled in detail and collected from national official publications and comprehensive open access systems of various statistical sectors.

Two different focus points highlighted

1. How did governments deal with potential problems when developing and implementing support packages?
2. What does it mean when the conditions of the facilities in the countries studied before the pandemic are compared with the post-pandemic levels?
  • Chapter 1, defines and explains the programs.
  • Chapter 2, presents the trade-offs we have identified in program design and implementation.
  • Chapter 3, explores the factors that explain the actual use in five countries and over time.
  • Chapter 4, findings and discussion.

National loan support packages

Covid-19 did not only affect social life, but also significantly limited the global money traffic. The first quarantine practices in March and May 2020 are seen to reduce the consumption level in European countries by 13 percent. However, with the closure of workplaces, employees, suppliers and intermediaries had to be paid.

Obtaining loans from banks seems to be one of the best options for medium-sized businesses to maintain currency liquidity. The private sector enterprises’ liquid resources support packages, tax delays, grants and loan supports of the states contributed significantly to the stability of the market.

Analysis Details

Optionally, we only include credit support programs in our analysis (i) country specific 2 and (ii) in the context of fiscal policy. After all, liquid support packages implemented by the European Central Bank (ECB), such as the corporate bond purchase package and refinancing of banks, were excluded from this scope. Another criterion we determined is that the subsidies of the Bank of England, which pays additional incentives to SMEs in order to increase the effect of monetary policy measures, are excluded.

The remainder of these explanations uses the term “loan support packages” to refer only to the programs included in the analysis. In the specified details, the credit moratorium has not been included, but these packages could be considered as supportive of the credit supports provided.

Subsidy packages were announced as a title package for guaranteed loans. On March 27, 2020, the German government announced a 50 billion Euro grant and a 756 billion Euro package for the loan support package for businesses that were closed. Announcements like this make the loan support packages an effective image. In the European countries included in the study, loan support packages only represent just over half of the rescue support funds announced for their businesses. It also represents a ratio between 14% and 20% of GDP.

The relationship between support packages and actual needs is shown below, and there is little between them.

Figure 1: Announced support measures for businesses under COVID-19-related programmes in €
billions and as % of 2019 GDP

Source: Bruegel (2020), based on the latest available data available post August.
Source: Bruegel (2020), based on the latest available data available post August.

Note: Rates for deferment of loan debts represent the approximate payment threshold prescribed by the ECB (2020c). Deferrals (taxes and expenses) correspond to the 2020 budget impact (i.e. excludes intra-year deferrals). Spending announced and approved by governments for 2020. Excludes automatic stabilisers except for labour support measures (eg short-time work schemes). The numbers for loan payment delays represent actual usage announced by EBA (2020).

The limitations of the EBA data are detailed in the notes in Table 6.

Rates for Italy are not included in the 200 billion Euro package for SACE export guarantees announced in 2020 but not implemented. “Credit support” includes small or local packages that are not included in other parts of this research. Other commercial measures include direct liquidity funding, grants and other supportive public subsidies.

Table 1 does not list the main loan support program, which was announced by June 30, 2020, after the COVID-19 outbreak. (You can see the list of all other programs covered in this research in Appendix 1).

Table 1: Credit support packages implemented by France, Germany, Italy, Spain and England during the pandemic.

Source: Bruegel

Note: Germany’s KfW program, which provides both loan supports and liquidity, has only one loan support program included in the research.

Four different sub-packs were announced under a single package in the UK. The support package for two different regions in Germany is a continuation of the already existing ones. GBP has been converted to EUR using the exchange rate as of 4 November 2020.

9 of the 10 biggest support programs implemented during the pandemic period are loan support packages. The tenth is the Bank of England’s securities debt purchase program. These nine package programs account for 90 percent of the total package volume.

They are listed in Table 2.

Table 2: Shows the largest COVID-19 loan support programs of the 5 states included in the study.

Source: Bruegel based on Kreditanstalt für Wiederaufbau (KfW), Bundesministerium für Wirtschaft und Energie (BMWi), Bank of Italy, French Ministry of Economics and Finance, Spanish Instituto de Crédito Oficial (ICO), UK Treasury, Bank of England, Google Finance (for currency exchange rates).

(1) In all cases, the package scope indicates the maximum nominal credit miles promised.

(2) KfW package, 100 billion Euro allocated to support KfW in case it is not liquid in real markets, is not taken into account. WSF is short for Wirtschaftstabilisierungsfond.

(3) Fondo Centrale di Garanzia PMI commitments are limited to donations. As of March 17, Fondo is preparing to provide loan guarantees of up to € 100 billion. However, although there has been no announcement regarding the changes to be made in the envelope, it has been increased since that time. The € 100 billion envelope announced for the Fondo Centrale di Garanzia PMI contains the provisions of the SME credit moratorium guarantee program. The 200 billion euro envelope announced for SACE is about the value of the share of facilities covered by the guarantee. For comparability, this figure is converted using the average. 80% warranty coverage (ie up to 250 billion Euros). A 200 billion euro package to support export credit to be implemented by SACE was announced on April 8, 2020, but will not be implemented until 2021. Therefore, it was not included in this research. CDP stands for Cassa Depositi e Prestiti; SACE stands for Servizi assicurativi del commercio estero.

(4) € 140 billion announced in two phases: € 100 billion on 24 March and € 40 billion on 3 July 2020. The second package aims to fund new investment projects. Announced € 100 billion + € 40 billion envelopes relate to the value of the share of facilities covered by the guarantee (eg 80% of facilities) For comparability purposes, this figure was calculated using the historical average coverage of 76%. The amounts include € 4 billion allocated to Spain’s Mercado Alternativo de Renta Fija (MARF) coupon guarantee program and € 0.5 billion allocated to the counter-guarantee program run by CERSA.

(5) Four sub-packs were announced in a single pack in the UK. For the purpose of these indicators, we can evaluate that the package is distributed equally among the four programs. GBP was calculated in EUR using the exchange rate on November 4, 2020.