COVID-19 and the mobilisation of public development banks in the EU

Abstract:

The debate over how Europe should organise solidarity and jointly respond to the COVID induced economic crisis is in full force, with various proposals either agreed or at debate such as the use of the European Stability Mechanism (ESM), the creation of new common debt instruments or the mobilisation of the upcoming Multi-Annual Financial Framework (MFF). So far, however, the prime responses to the economic shock have been located at the national level, not only being proof of the fact that most firefighting is done at the level of Europe’s nation-states but also displaying the inequalities of fiscal capacity that still loom large in the EU’s political economy.

There have been various studies and reports comparing governments’ initial fiscal responses to the COVID-19 crisis. While there are differences in the size and composition of fiscal packages, a common feature that emerges is the strong reliance on credit guarantees and other liquidity support measures. Less appreciated in current debates is the fact that these measures are often administered and distributed by a specific sort of para-fiscal actors: development banks, or national promotional institutions. Even at the European level, significant parts of the common response to the economic impact of the pandemic rest on the European Investment Bank (EIB).

This policy brief highlights the key role these para-fiscal institutions play in Europe and reviews the similarities and differences in their responses by focusing on five large institutions (EIB, KfW, Bpifrance, CDP, ICO). It explains how these entities have worked as governments’ ‘little helpers’ in the European context of the past decade and points to key challenges that come with their role in terms of a coordinated and solidarity-based European effort.

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