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Mechanisms of Resisting COVID-19 Economic Collapse: Corona Bonds under Discussion

Coronavirus pandemic brought world economy to the downturn. Large companies were forced to stop production and send their workers home or change the strategy and shift to online regime. Small companies, private business, entertainment, transport, catering and tourism turned to be the most vulnerable. Many employers lay off their workers in order to not to pay salaries – as a result unemployment rate rises and people feel serious lack of livelihood.

The question of preventing economic crises in Europe is urgent today. European governments, main financial institutions and leading European economists discuss possible measures to reduce coronavirus negative impact on European economy and to deal with “massive loss of income”. The implementing of corona bonds is in particular under discussion.

The idea was developed by Italian Prime MinisterGiuseppe Conte and stated on 17 March, Tuesday, during a video-conference with EU leadership. Corona bonds mean releasing billions of dollars on loan for members that were influenced by the pandemic the most. They are supposed to be used for national health systems and medical supply. According to joint statement published in Frankfurter Allgemeine, in the wake of liabilities divided between Member States the debt of countries affected the most would increase comparatively little. However, there is no common opinion towards the problem. The idea of corona bonds was supported by France and rejected by Germany and the Netherlands. The next discussion between the EU leaders on the issue is held on Thursday this week.

The activation of the European Stability Mechanism (ESM) is also considered to resist the economic consequences of the pandemic. The ESM was founded to support EU countries in a case of crisis, now it disposes more than 400 billion euros and can provide credit lines for most injured countries.

Last week the President of the European Commission Ursula von der Leyen claimed that European Central Bank budgetary rules are being relaxed in order to enable national governments to pump into the economies as much as they need, as well the European Commission President noticed that further steps preventing bankruptcy will be taken. Corona bonds mechanism is not an exception, thus, it is connected with risks to the European budgetary system.

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