More support measures as EU slips into recession
By ECCT staff writers
The European Commission has adopted a banking package to help facilitate bank lending to households and businesses throughout the European Union. According to an article on Europa, the EU’s official website, the aim of this package is to ensure that banks can continue to lend money to support the economy and help mitigate the significant economic impact of the coronavirus. It includes an interpretative communication on the EU's accounting and prudential frameworks, as well as targeted “quick fix” amendments to EU banking rules.
Among these, the commission is encouraging banks and supervisory authorities to make use of the flexibility in the EU's accounting and prudential frameworks. For example, the communication confirms the flexibility available in EU rules when it comes to public and private moratoria on loan repayments. The communication also highlights areas where banks are invited to act responsibly, for example by refraining from making dividend distributions to shareholders or adopting a conservative approach to the payment of variable remuneration. The communication also recalls how banks can help businesses and citizens through digital services, including contactless and digital payments.
These are the latest measures to compliment other measures already implemented such as the European Central Bank’s €750 billion pandemic emergency purchase programme (PEPP) to buy bonds and other assets as well as agreeing to give banks up to €3 trillion of cheap liquidity and more than €120 billion in capital relief.
The latest measure was announced just before Eurostat, the statistical office of the European Union, released its preliminary flash estimate of -2.7% GDP in the EU in the first quarter of 2020, compared to the previous year. According to Eurostat, seasonally adjusted GDP decreased by 3.8% in the euro area and by 3.5% in the EU during the first quarter of 2020, compared with the previous quarter. These were the sharpest declines observed since the time series started in 1995. Compared with the same quarter of the previous year, seasonally adjusted GDP decreased by 3.3% in the euro area and by 2.7% in the EU in the first quarter of 2020, after +1.0% and +1.3%, respectively in the previous quarter. These were the sharpest declines since the third quarter of 2009 (which posted GDP of -4.5% for the euro area and -4.4% for the entire EU).