Barclays: The three options the EU has to ‘respond’ to the economic and energy shock

Her Eleftherias Kourtali

Europe currently has three options, according to Barclays, to deal with the effects of the Russian invasion of Ukraine on the region’s economy and energy shock. The European Union, he points out, has already shown during the Covid crisis that it has budget instruments that could also be developed at EU level.

So the three possible ways for the EU to react are:

1) Implementation of a new targeted program

Emergency plans such as SURE (Support for Mitigating Unemployment Risk in an Emergency), which provided back-to-back loans in 19 EU Member States, could be rapidly developed and adapted to the new crisis, for example financing grants to tackle higher energy prices for households and companies.

Barclays believes this is the most likely option, as the EU could provide clear guidelines for the program as well as terms and conditions. EU Economy Commissioner Paolo Gentiloni said on Monday: “We need to find new tools to tackle the new issues posed by this crisis.” However, a new targeted program will have to be agreed by all 27 Member States, and a new program – which will be implemented so quickly after the NGEU – is disapproved of by some Member States.

2) Reactivation of the ESM crisis pandemic support line

The € 240 billion ESM pandemic crisis support line (which was not used during the pandemic) could be reactivated. However, the tool was created to deal with the consequences of the COVID-19 crisis. Therefore, the British bank believes that reactivation is not the most likely option.

This option would also be the most likely to fund a joint defense program, in her view. Many EU member states are not members of NATO, so countries like Finland or Ireland would not want to fund something they would not benefit from.

3) Use of NGEU

Finally, the NGEU funds have not yet been fully allocated, as many countries eligible for RRF loans have not applied. Of the € 386 billion available, only € 154 billion has been allocated and the remainder (€ 232 billion) could be redistributed to mitigate the effects of the current crisis.

However, Barclays believes that a targeted rapid response is needed and, therefore, it seems unlikely that the unused portion of the NGEU will be available, where disbursements depend on milestones and targets.

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