March 2020 has seen Europe continued to be tested by health-related concerns, financial market stresses and economic readjustments. While policymakers at the EU level and national levels have pledged to do “whatever it takes”, there are sticking points. One key area is financing over the shorter and longer term coupled with monetary policy support and fiscal stimulus. This includes immediate support from the EU’s Coronavirus Response Investment Initiative (CRII), including using EU Cohesion Funds and the European Structural and Investment Funds to support Member States’ economies and investment in healthcare and support small-to-medium sized enterprises and workers, but also includes the EU, together with national authorities, taking coordinated and comprehensive action to prepare for and accelerate an economic recovery. 

It is conceivable that further action may be on the way, in particular as various national and EU-policymakers have been calling for a “Marshall Plan for Europe”. Yet, this will invariably however mean dealing with current proposals on the table first as well as looking at whether tools from the last crisis remain fit for purpose and the divide of responsibility as well as coordination between policymakers and authorities across various policy dossiers.  

The pressures caused by the common threat of the Coronavirus has led, in the EU-27, for a reinvigorated call for issuance of common debt instruments. Building off the Sovereign Bond-Backed Securities proposal, now rebranded as “Corona Bonds”, interest is growing but so are the rifts. These discussions are conceptually independent of the plans on how to use the European Stability Mechanism (ESM) as a backstop but still do tie into the EU-27 discussions on future budgets, cohesion and solidarity. Part of these discussions equally reflect the priorities and national positions that were discussed in our February Newsletter on the EU’s multi-annual financial framework i.e., its budget post-Brexit.  

In addition, financial markets are facing unwelcome challenges from some of the drafting and impact of these relief measures, whether these are moratoriums on payments possibly adding to non-performance risks, short-selling bans and threats of market closures adding to additional margin call or termination pressures in addition to wide-scale remote working arrangements affecting efficiency. 

However, irrespective of the range of support measures that have been announced or operationalized by the ECB/-SSM, the European Supervisory Authorities (EBA, ESMA and EIOPA), the international forum such as the BCBS and FSB along with the efforts by national authorities temporary relief does not mean a repeal of rules. We expect there to be greater supervisory scrutiny, beyond the 2020 and multi-annual priorities, on rules impacting financial services firms, their counterparties and clients. This includes: 

1. Focus on prompt identification, mitigation and management of existing and new non-performing loans and exposures (NPLs), as well as how firms are meeting new EU rules on loan origination and credit servicing standards; 
2. Revisiting but also reinforcing market and conduct of business standards as well as consumer protection measures and making adaptations where required in light of new operating realities impacting how financial services products are distributed and serviced; 
3. Assessing the breadth of availability and strength of financing channels in light of extraordinary monetary policy measures and changes to central bank collateral asset eligibility standards; 
4. Improving operational resilience capabilities in face of digital and cyber-related risks as well as more traditional risks affecting firms during normal operating conditions as well as future pandemic preparedness; and
5. Supporting firms as they embrace new challenges and opportunities in view of wider-ranging digital transformation projects. 

Further analysis on the developments above are in this month’s Thought Leadership section as well as on our Eurozone Hub.

To support client needs, Dentons also has created a free Global COVID-19 Hub, accessible from our web page, offering our clients the best of our insights, guidance and counsel in addressing COVID-19 related issues across the 75 countries in which Dentons operates. For instance, with employment issues at the forefront of our clients’ minds, this includes a multi-jurisdictional tool on employers’ responsibilities across countries. For this and a number of other resources, please visit: https://www.dentons.com/en/covid-19