How has the EU responded to the impact of the Corona-crisis?
The outbreak of the coronavirus in China at the end of 2019, and its spread across Europe and the rest of the world from February 2020 onwards, started out as a health crisis before evolving in a more general crisis touching on all segments of public life. Virtually all economic sectors partly grounded to a halt, businesses were sometimes forced to close their doors, people were losing their jobs, countries had closed their borders and air traffic had come to a virtual standstill.
From June 1 2020, in EU member states the economic and societal restrictions are gradually softened, and from June 15 traveling to European countries is possible again. However, because of regional outbreaks the restrictions for some areas are more severe again.
In 2018 and 2019 we audited the travel advices defined by the Ministry of Foreign affairs. We concluded that it was not always clear how risks in foreign countries determined the advice by the Ministry.
The European Centre for Disease Prevention and Control (ECDC) publishes a weekly update on the current travel restrictions.
- See this website for more information
The EU member states have also been hit hard by the COVID-19 crisis. In early March 2020, the EU institutions started formulating policies to help EU member states alleviate the effects of the crisis. This page lists the main financial measures taken by the EU to support the healthcare system and the economy. For information on policy in general, we refer you to the COVID-19-sites launched by the European Commission and the European Council.
Financial measures taken by the EU to support the healthcare sector
The EU has taken the following measures to support the healthcare sector.
- Acting on a proposal from the European Commission, the Council of the European Union and the European Parliament agreed to activate an Emergency Support Instrument (ESI). This allows the Commission, among other things, to tender directly for the member states and coordinate and finance the central procurement and transport of medical equipment. In addition, resources are being freed up for the rescEU initiative, which involves building up a strategic stock of vital medical equipment – and distributing it if necessary. The funding for the two instruments stands at just over € 3 billion, a sum allocated from the EU budget. The EU member states together will be required to contribute an extra € 3 billion to the EU budget.
- The EU has freed up funds for combatting COVID 19 from its Horizon 2020 research and innovation fund, which has been allocated a budget of € 80 billion for 2014-2020. The funds will be used for developing vaccines and new treatment methods, among other things. Almost € 50 million has been allocated to 18 research projects, and around € 45 million to the Innovative Medicines Initiative (to which the pharmaceutical industry will be contributing an equal amount).
- The Commission has also granted support of up to € 80 million to the CureVac vaccine development company, in the form of a guarantee from the European Investment Bank (EIB).
On behalf of the EU, the European Commission’s Joint Negotiation Team (consisting of the Commission, France, Germany, Italy, Netherlands, Poland, Spain and Sweden) negotiated with vaccine developers and signed 6 procurement contracts in the course of 2020 for a total of nearly 2 billion doses. The Commission is providing about € 2.7 billion in support from the Emergency Support Instrument. Click here for more information.
In addition to the above measures, which entail the direct investment of EU funds, the EU also supports the healthcare sector in member states by issuing medical guidelines, and helps member states to obtain personal protective equipment for their healthcare workers. Against this background, the European Commission has, on 28 February, 17 and 19 March and 17 June 2020, launched four joint procurement procedures e.g. for personal protective equipment, face masks, ventilators, test kits and medicines.
Economic support for EU member states
On 27 May 2020 the European Commissions presented its proposal for a € 750 billion recovery fund, named Next Generation EU, together with new proposals for the multiannual financial framework 2021-2027 for the EU.
In the upcoming period negotiations will take place with EU-member states on the exact shape and specifications of the recovery fund.
On 21 July 2020 the European Council, which is made up of heads of state or government of the EU member states, reached a political agreement on an adjusted recovery package. The European Commission will be authorized to lend up to € 750 billion on the capital market. Up to € 360 billion can be used for loans to member states and up to € 390 billion can be used for grants for member states: ‘The European Commission has to repay the loans between 2028 and 2058'.
The European Parliament agreed to the adjusted package on 10 November 2020.
- More information on the package is available here.
After the European Council and Parliament reached agreement on the Multiannual Financial Framework on 17 December 2020, agreement was reached on the Recovery and Resilience Facility on 18 December 2020. This facility is at the heart of Next Generation EU. It will make € 672.5 billion available in loans and grants to support reforms and investments in EU member states.
In the upcoming period negotiations will take place with EU-member states on the exact shape and specifications of the recovery fund.
On 9 April 2020, European finance ministers reached agreement on a € 540 billion financial support package for countries hit most severely by the COVID-19 crisis. The package consists of the following components:
- € 240 billion from the European Stability Mechanism (ESM) emergency fund;
- € 200 billion in company credit distributed by the European Investment Bank (EIB);
- € 100 billion for a new temporary instrument known as Support to mitigate Unemployment Risks in an Emergency (SURE).
Click here for a full list of the components of the support package. The press release issued by Euro group chair (until July 12) Mario Centeno has more detailed information. The European Council, which is made up of heads of state or government of the EU member states, adopted the financial assistance package on 23 April 2020.
On 13 March 2020, the European Commission proposed a Corona Response Investment Initiative (CRII) to mobilise support for the fight against COVID-19. A total of € 37 billion in non-utilised resources from the European Structural and Investment (ESI) Funds will be used for COVID-19-related support for the healthcare sector, small and medium-sized enterprises (SMEs), vulnerable sectors and the labour market. A total of € 425 billion is available from these funds for 2014-2020. On 2 April 2020, this initiative was followed by a CRII+ package offering increased flexibility and aimed at quickly mobilising non-utilised support from the European Structural and Investment Funds. The European Parliament and the European Council adopted the two proposals on 17 April and 22 April respectively. It was decided at the same time that EU member states would be allowed to apply, during the period between 1 July 2020 and 30 June 2021, for 100% funding from the European Structural and Investments Funds for projects aimed at enabling SMEs to use innovation to improve their competitiveness, for instance. Normally speaking, the member states are required to fund 50% themselves (under a system known as co-financing). These measures will be financed from the current EU budget.
Measures for offering EU member states more financial leeway
EU member states are bound by European fiscal rules governing their national budgets. The Stability and Growth Pact (SGP) sets limits on the budget deficits (3% of GDP) and government debt (60% of GDP) of EU member states, and states how any countries that deviate from these limits must set about achieving them. The annual European Semester is used to align EU member states’ economic and budgetary policies with jointly agreed EU objectives and rules.
Acting on a proposal from the European Commission dated 20 March 2020, the Council of the European Union and the European Parliament agreed to activate the SGP’s general escape clause. This allows EU member states to take all the financial measures that they feel are needed at a national level in order to kickstart the economy without violating the rules of the Stability and Growth pact. These measures may include making funds available to the healthcare sector, businesses and private citizens. In addition to this, the European Commission has put forward a simplified process for this year's European Semester – in which the EU member states’ budgets are assessed – that allows reporting deadlines to be extended. The customary spring reports will not all reflect the current situation, as government finances in all EU member states are deteriorating rapidly due to the COVID-19 crisis.
On 26 March 2020, the European Central Bank (ECB) launched its Pandemic Emergency Purchase Programme (PEPP), under which the ECB could buy up to € 750 billion worth of private and public sector securities. The initial purchase envelope was increased by € 600 billion on 4 June 2020 and by a further € 500 billion on 10 December for a new total of € 1,850 billion. Not only will the programme make it less expensive for member states to raise capital, governments will also be able to support companies and households that have run into difficulties due to the COVID-19 crisis. At the end of July 2020, the ECB had purchased public sector securities to an amount of almost € 385 billion, including more than € 20 billion in Dutch government debt.
- More information is available on the ECB’s website.
Temporary adjustment of EU rules on state aid
In order to prevent unfair competition, EU rules forbid governments in principle from providing state aid to the corporate sector. The following website contains more information on the European Commission’s definition of state aid and on how potential infringements of the rules on state aid are investigated.
In exceptional cases, however, the European Commission may give its consent to the provision of state aid subject to certain stringent conditions. The European Commission considers the COVID-19 crisis to be an exceptional situation, and, in response, has prepared temporary policies for supporting the economies of EU member states. These policies are set out in the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak.
All EU member states and the United Kingdom are entitled to request the European Commission to approve temporary state aid in the context of the corona-19 crisis. This temporarily state aid regime will end on 30 June 2021. On 22 April 2020, the European Commission approved a Dutch loan guarantee scheme of up to € 10 billion to support the Dutch economy. On 13 July 2020 the European Commission approved the Dutch proposal for a grant of € 3,4 billion to KLM.
The European Commission has made proposals for all EU member states in the context of the new, temporary state aid regime. The total amount involved was € 2,100 billion in the period to 25 May 2020 A list of all proposals approved as at 31 December 2020 is available here.
The European Commission published guiding templates on 21 December 2020 to help the member states in the design of their national plans to combat the COVID-19 crisis under the Recovery and Resilience Facility in accordance with EU state aid rules.
Examples of other EU measures
In addition to measures aimed at the healthcare system and the economy, the EU has taken far-reaching measures in a large number of other policy areas. With effect from 30 March 2020 to 15 June 2020, a temporary restriction was imposed, for instance, on all non-essential travel to and from the EU. Exceptions have been made for specific categories of travelers, e.g. to make it possible for countries to repatriate nationals stranded in other countries all over the world. The European Commission has also suspended airport slot requirements. Under the EU regulations on airport slots, airlines are obliged to use at least 80% of their take-off and landing slots during the course of the year in order to retain them in the following year. Due to the drastic drop in air travel, airlines cannot possibly achieve the required 80%. On 16 December 2020, the European Commission submitted a proposal obliging airlines to utilise at least 40% of the slots allocated to them if they wish to retain their rights.
On 5 May 2020, the Council of the EU decided to adopt a European Commission proposal of 22 April 2020 to provide a € 3 billion macro-financial assistance package to ten enlargement and neighbourhood partners (including a number of Central and Eastern European countries, and Middle Eastern countries), in order to help them in their efforts to combat COVID-19.
What impact do these EU measures have on the work of the Netherlands Court of Audit and the European Court of Auditors?
We continue to perform our audits, which form part of the democratic scrutiny and accountability – checks and balances - of the Dutch central government, during the current corona-19 crisis. The Netherlands Court of Audit monitors and audits the Dutch central government and its associated institutions. The power to audit EU resources directly invested in member states lies with the European Court of Auditors (ECA). If EU resources are spent in the Netherlands, the Netherlands Court of Audit also has audit powers in virtually all cases.
The ECA audited the CRII+ package proposed on 2 April 2020 and approved on 22 April 2020. The ECA notes that the package may cause a significant administrative burden (in terms of the need to adapt existing programmes), that reliable information on spending will not be readily available, and that the adoption of modified audit methods will tend to weaken the way in which spending is scrutinised, precisely at a time when expenditure is likely to be exposed to a greater risk of error and/or fraud.
On 14 July 2020, the ECA published an opinion on REACT-EU. REACT-EU is part of the Next generation EU Package and supplements the cohesion funds with € 58 billion in order to stimulate investments and offer financial support. The ECA points out that there is a tension between the proposal’s aim of providing the extra funding as swiftly as possible and the goal of making it available where it is needed most and will have most effect. The auditors also warn that the crisis response mechanisms the Commission is proposing for the next seven-year budget lack provisions conducive to the sound financial management of EU funds.
On 9 September 2020 the ECA published an opinion on the Recovery and Resilience Facility (RRF), that is proposed as part of the Next generation EU. Through the RRF over € 600 billion in grants and loans will be distributed to EU member states.
The ECA points to the importance of the national Recovery and Resilience Plans (RRPs) in making sure that the EU’s financial support is targeted at achieving the overall common EU objectives for cohesion, sustainability and digitalization, and coordinated well with other forms of EU and national support. The ECA stresses that strong and effective measures against fraud and irregularities must be put in place by the Commission and Member States, in order to ensure that the EU’s financial support is used for its intended purposes.
The adequacy of the financial amounts proposed to address the consequences of a crisis still unfolding is difficult to assess. This is because even though the RRF was introduced as a response to the medium and long-term consequences of the pandemic, the proposed allocation of the financial contributions to Member States is to a large extent determined by the pre-COVID situation.
The 2008 financial crisis showed that European measures may affect the ability of supreme audit institutions to continue to perform independent audits. This may be relevant to audits of the use of resources from the ESM emergency fund, and also to audits of the easing of capital requirements for banks in the euro area. We recently published a blog about the ESM entitled “The ESM and the importance of independent audits.”
We have published a blog on the banking union entitled “European banking union shuts the doors to audit offices”.