{"id":537,"date":"2020-03-25T16:07:37","date_gmt":"2020-03-25T15:07:37","guid":{"rendered":"http:\/\/webecpol.esade.edu\/?post_type=publicaciones&#038;p=537"},"modified":"2020-11-08T19:26:32","modified_gmt":"2020-11-08T18:26:32","slug":"esm-pandemic-spain","status":"publish","type":"publicaciones","link":"http:\/\/webecpol.esade.edu\/en\/publications\/esm-pandemic-spain\/","title":{"rendered":"The ESM must help against the pandemic: the case of Spain"},"content":{"rendered":"<h2>EsadeEcPol Insight #3<\/h2>\n<h4 class=\"t-title2\">Executive summary<\/h4>\n<p>The amount of financial resources needed to fight the pandemic is so large that\u00a0<strong>most member states will need a backstop from Europe<\/strong>. There have been proposals involving eurobonds and helicopter money\u00a0\u2013 these would work and may eventually be implemented. However, a fully operational and speedy solution is needed now.<\/p>\n<p>The European Stability Mechanism (ESM) lending toolbox is available, has funds and is scalable. In this note, we operationalise the proposal by B\u00e9nassy-Qu\u00e9r\u00e9\u00a0<em>et al<\/em>. (2020a, 2020b) to create a &#8220;Covid credit line in the ESM with allocation across member states.&#8221;\u00a0We evaluate three funding alternatives using the existing ESM toolbox.\u00a0We use Spain as a case study, but similar results would apply to a broad range of euro area countries.<\/p>\n<p>We calibrate\u00a0<strong>a combination of a large, long-maturity ESM loan and a near zero interest rate<\/strong>\u00a0that delivers a prudent gross-financing-needs path, a fiscal effort within reach\u00a0and sustainable public debt dynamics.<\/p>\n<ul>\n<li><strong>The Spanish government has put forward a plan that amounts to \u20ac200 billion (16.5% of GDP)\u00a0<\/strong>including transfers and government guarantees, which will mostly be called in. Funding such a package in the markets would be challenging for the Spanish Treasury. Gross financing needs would increase to about 30% of GDP per year for the foreseeable future and public debt would reach almost 140% of GDP by 2030.<\/li>\n<li><strong>Using a debt sustainability framework, we show how an ESM loan, without a spread and a smoothed repayment schedule, would stabilise public debt-to-GDP at 125% of GDP<\/strong>, and gross financing needs would remain at less than 20% of GDP per year.<\/li>\n<li><strong>Lower interest rates under the ESM programme could help Spain save around \u20ac150 billion in interest payments<\/strong>\u00a0cumulatively between 2020 and 2030.\u00a0ESM support would also reduce the fiscal effort needed to stabilise public debt. The fiscal effort could be reduced to a level similar to the baseline scenario without the Covid-19 shock.<\/li>\n<li><strong>ESM support, especially if coming through a precautionary line or a standard programme (with light conditionality), would be most effective if provided with reduced margins<\/strong>\u00a0(as with Ireland and Portugal in 2011) and financed with short maturities. They would also allow the activation of ECB\u2019s OMT programme.<\/li>\n<li>In sum, the\u00a0<strong>combination of a bold ESM and ECB support\u00a0<\/strong>solidifies sustainability after the COVID-19 shock, and can do the same for more fragile member states.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Most member states will need a backstop from Europe to fight the Covid-19 pandemic.<\/p>\n","protected":false},"featured_media":717,"template":"","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.9 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The ESM must help against the pandemic: the case of Spain - Center for Economic Policy - EsadeEcPol<\/title>\n<meta name=\"description\" content=\"The amount of financial resources needed to fight the pandemic is so large that\u00a0most member states will need a backstop from Europe.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"http:\/\/webecpol.esade.edu\/en\/publications\/esm-pandemic-spain\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The ESM must help against the pandemic: the case of Spain - 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