VOX CEPR
“Corona and Financial Stability 4.0: Implementing a European Pandemic Equity Fund”. Arnoud Boot, Elena Carletti, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Marti Subrahmanyam.

Covid-19 and Financial Stability in Europe

This article, released by the VOX- CEPR Policy Portal with the contribution of several authors, considers that “the involvement of the EU in fighting the detrimental consequences of the covid-19 crisis has to be increased”.

  • According to the authors this is essential to bridge the “cash flow shortfalls” of most of the economic actors at the Eurozone and to avoid this liquidity problem becomes a solvency issue, which ultimately could undermine the financial stability of euro area member states.
  • So far governments are implementing “rescue programmes” that according to them “have important side effects as they are largely debt based, suggesting a rapid rise in debt levels at the firm level, not coordinated at a European level, and differ greatly in volume across EU member states
  • Instead of that, they propose a simple scheme denominated “European Pandemic Equity Fund” (EPEF) based on equity-like investments, particularly in SMEs: “it basically trades an initial cash flow injection by the EPEF into the firm against a proportionate participation in future gross earnings (‘value added’) or net earnings (‘profits’)”.
  • However the devil is in the details and this article tackles some open questions in the definition of this scheme such as the eligibility criteria, the size and the structure of the investment, the funding of the EPEF…

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