As few as 200 Irish companies may benefit from the EU’s €500bn rescue package and analysts say Europe will have to spend a lot more to mitigate the economic fallout from Covid-19 crisis.
Following marathon talks by teleconference, EU finance ministers agreed Thursday evening to a three-part pandemic package costed at €500bn.
The centre piece is a hard-fought over safety-net for the worst-hit European nations such as Italy and Spain to access credit from the eurozone bailout fund, the European Stability Mechanism, or ESM. The measure is designed to help them finance the enormous health costs incurred in fighting the virus and to secure continuing access to sovereign debt markets.
About a third of Ireland’s €67.5bn international bailout in 2010 was sourced through the ESM -- a fund which is still led by Klaus Regling in Luxembourg. However, the Government has no plans to avail of the ESM in this crisis because it can currently borrow from debt markets at interest rates of little above zero.
The second part of the EU package involves €100bn of low-cost loans under a recently announced fund called Sure -- the Support to mitigate Unemployment Risks in an Emergency -- which governments across Europe could tap to fund their versions of wage-support schemes. However, Finance Minister Paschal Donohoe told reporters the State may likely not use Sure, implying lower-cost borrowing was available through the debt markets.
But the Government would likely avail of third part the package, potentially tapping loans through the European Investment Bank, or EIB. The investment bank would guarantee €25bn in funds to create lending for SMEs across Europe worth up to €200bn, the EU has said.
Ireland already has experience of using EIB loans through the Government’s Strategic Banking Corporation of Ireland (SBCI), Mr Donohoe said.
It has emerged, however, that Ireland may likely secure an allocation of €2bn or €3bn of the EIB-guaranteed fund, which implies that as few as 200 Irish middle-sized companies would likely benefit.
Fergal O’Brien, director of policy at business group Ibec, said the EIB or the Government would cover the riskiest parts of the loans helping banks to leverage up the amount of lower-cost loans available for businesses.
The new EIB business loans would likely be made available through the SBCI or commercial banks and would be similar to a British scheme announced last month. But he estimated that the up to €3bn in loans that could be generated in Ireland would only cover a tenth of the liquidity needed by Irish mid-sized firms.
“It is another important step but we need to keep the shoulder to the wheel to reach what we think is that target which we think it is between €20bn and €30bn in liquidity that we need for the economy,” he said.
Economist Jim Power said the three-part package was an “underwhelming” response to the crisis, and he expected the EU would need to do much more. “It is a step in the right direction and Europe will have to do a lot more in the next few months. It is the beginning of the process,” he said.
Mr Power said small SMEs would likely be wary of taking on more debt and that any EIB-sourced loans would be targeted at a relatively small number of mid-sized firms.