Blog Post

Government-guaranteed bank lending six months on

In March and April 2020, European governments announced massive credit support programmes. After an initial surge, take-up appears to be stabilising (with a lag in Italy), despite second wave shocks in some countries. More recent data confirms that fiscal capacity has not visibly constrained national governments in the support they have provided so far.

By: , and Date: September 29, 2020 Topic: European Macroeconomics & Governance

Credit-support measures, such as loan guarantees, have been one of the main tools to soften the economic blow of COVID-19. Early in the pandemic, European governments deployed unprecedentedly huge credit support to mitigate the liquidity shock facing businesses during lock downs. Concerns about the effects of these programmes quickly followed their announcements.

An often-expressed worry was that less-indebted countries would have more fiscal capacity to help their businesses, and thus unequal support would distort competition in the EU single market, providing an unfair funding advantage to firms in countries with more fiscal space.

Our preliminary findings, published in July, suggested that these concerns had already become somewhat obsolete (relatedly, André Sapir found that low fiscal capacity did not worsen counties’ economic contractions; he concluded that the European Central Bank’s pandemic emergency purchase programme, which was launched in March 2020, has been successful). Firms in less-indebted countries did not appear to disproportionally benefit from national credit support schemes. Updated September numbers confirm these findings: German firms are still collectively the lowest users of the scheme as a share of GDP, whereas by the same yardstick, Spain still tops the chart and Italy is now ranked second (Figure 2).

Figure 1: Government-backed credit support for businesses, € billions

Figure 2: Government-backed credit support for businesses as percent of 2019 GDP

Figures 1 and 2 show that the amount of support provided has gradually levelled off in most of the covered countries, from weekly growth rates of 6%-7% in June, to 1% in September. The exception is Italy, which is still catching up from a late start. But even there commitments are stabilising – growing at a mere 3% per week in September compared to 30% in June.

This stabilisation trend has been apparently unaffected by health-related shocks: there has been no spike in commitments in Spain or France to match the dramatic rise in cases witnessed over the summer. This could indicate that firms were sufficiently buffered or, if not, that most eligible firms had already benefited from the maximum amounts allowed under the scheme. Alternatively, firms might be unwilling or unable to take on more debt.

Our ongoing research project on credit support programmes attempts to clarify some of these trends. We will publish frequent updates of government commitments in this new Bruegel dataset. Please refer to the note accompanying the dataset for more information on our methodology and the programmes included in Figures 1 and 2.

Recommended citation:
Anderson, J., F. Papadia and N. Véron (2020) ‘Government-guaranteed bank lending six months on’, Bruegel Blog, 29 September


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article Download PDF
 

External Publication

European Parliament

The impact of COVID-19 on the Internal Market

Study assessing the impact of the COVID-19 crisis on the European Union's Internal Market and consumer protection prepared for the European Parliament.

By: J. Scott Marcus, Niclas Poitiers, Lionel Guetta-Jeanrenaud, Monika Grzegorczyk, Sophie Buckingham, Fernando Hortal Foronda, Norman Röhner and Jacques Pelkmans Topic: European Macroeconomics & Governance, European Parliament, Testimonies Date: March 1, 2021
Read about event More on this topic
 

Upcoming Event

Mar
15
13:00

Think green act local: the role of the G20 in sustainable infrastructure

In this workshop, invited guests will discuss priorities and proposals for the Italian G20 Presidency for a green local infrastructure agenda.

Speakers: Amar Bhattacharya, Maria Demertzis, Niclas Poitiers and Gelsomina Vigliotti Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic
 

Working Paper

COVID-19 credit-support programmes in Europe’s five largest economies

This paper assesses COVID-19 credit-support programmes in five of the largest European economies, and examines how countries have dealt with trade-offs raised by the programmes.

By: Julia Anderson, Francesco Papadia and Nicolas Véron Topic: European Macroeconomics & Governance Date: February 24, 2021
Read article More on this topic More by this author
 

Opinion

Asset bubbles won’t help our post-pandemic recovery

An unintended consequence of the virus has been ‘one of the wildest bull markets in recent economic history’ but a worsening of income distribution will have a negative impact further down the line.

By: Alicia García-Herrero Topic: Finance & Financial Regulation Date: February 23, 2021
Read article More on this topic More by this author
 

Opinion

La dette : une obsession prématurée

Ce qui est malsain, avec la proposition d’annuler la dette, c’est le déni de réalité consistant à affirmer que l’Etat peut effacer une partie de ses engagements sans que cela ne coûte à personne.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: February 22, 2021
Read about event More on this topic
 

Past Event

Past Event

Money laundering and hybrid threats: Has COVID-19 made it all worse?

Will the European Union and its member states be ready to control this risk – even if competition for financial inflows intensifies?

Speakers: Arnis Praudins, Arnis Šnore, Nicolas Véron and llze Znotiņa Topic: Finance & Financial Regulation Date: February 18, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

So long, credit support?

How effective have COVID-19 credit support programmes been?

By: The Sound of Economics Date: February 17, 2021
Read article More on this topic
 

Opinion

Aiming for zero COVID-19: Europe needs to take action

Aiming for 'green zones' offers a clear path to navigate an exit from the pandemic with as little damage as possible. Europe should not miss the opportunity to build on its strength and unity.

By: Miquel Oliu Barton, Bary Pradelski and Guntram B. Wolff Topic: Global Economics & Governance Date: February 17, 2021
Read about event More on this topic
 

Past Event

Past Event

The role of transition finance: a conversation with EBRD President Odile Renaud-Basso

Join us in conversation with EBRD President Odile Renaud-Basso.

Speakers: Odile Renaud-Basso and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 16, 2021
Read about event More on this topic
 

Upcoming Event

Apr
21
14:00

Living standards and financial resilience across Europe

What has the impact of the pandemic on households’ financial resilience been, and how should policy makers respond?

Speakers: Zsolt Darvas, Maria Demertzis and Daniel Tomlinson Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author
 

Podcast

Podcast

From support to recovery: national fiscal policy in the wake of COVID-19

The EU has set ambitious goals for economic recovery: how these recovery funds are spent by member states will be critical to its success. A look into the European framework and the case of Italy.

By: The Sound of Economics Date: February 10, 2021
Read article More by this author
 

Opinion

Will COVID accelerate productivity growth?

The COVID-19 pandemic has prompted an increasing number of rich-country firms to reduce their reliance on global supply chains and invest more in robots at home. But it is probably too soon to tell whether this switch will increase productivity growth in advanced economies.

By: Dalia Marin Topic: European Macroeconomics & Governance, Global Economics & Governance Date: February 10, 2021
Load more posts