“COVID-19 credit-support programmes in Europe’s five largest economies by Julia Anderson, Francesco Papadia and Nicolas Véron

Public Policies to deal with the Covid-19 crisis

The Brussels based “think tank” Bruegel has released a report in which it makes an in-depth analysis of public guaranteed credit programs, in France, Germany, Italy, Spain and the United Kingdom. The report assesses the difficult political trade-offs that influence the size and design of support programs –i.e. minimizing cost versus broadening its scope- and finds interesting conclusions to explain why in some countries their usage has been much higher than in others.

  • Same ingredients but different recipes: Fiscal policy tool-kit to deal with the crisis has been pretty similar among European countries. Public guaranteed loans programs have been dominant in terms of relative size (between 14% and 20% of GDP in the 5 countries of the analysis) versus other kind of public support measures. European governments have also provided a full range of other non-credit support measures to help their SMEs to overcome the crisis, such as tax deferrals, wages subsidies, direct grants, recapitalization schemes and loan deferrals. The weight of these non-credit support measures varies from 8% of GDP in Italy to 7% in France and UK, or 3% in Spain and 14% in Germany.
  • Size, design and usage of public guaranteed loan programs may depend on the combination of several factors such as the structure of the countries, the severity of the crisis, the liquidity and financial position of the companies before the crisis or the political trade-offs as “some governments prioritized direct transfers over credit support, so that generous grant schemes, for instance, may be counterbalanced by less generous credit support”.
  • However there is a correlation between the higher availability of other non-credit support and the final take up of the public guaranteed loan programs by the SMEs: The report finds that on average “firms’ need for credit support is determined to a great extent by the availability of public support from other non-credit support programs” such as business grants, tax deferrals, direct recapitalization and labour support schemes.
  • According to the report, Spain is the country with the highest usage of their public guaranteed loan programs (63% of the total amount available, equal to 9% of GDP) while Germany is the lowest (9% of the total amount available, equal to approx. 1% of GDP) and at the same time is the country with the lowest non- credit support program for companies.

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