State equity support runs risk of moral hazard

One of the arguments released by supporters of the EU’s landmark EUR750 bn healing bundle concurred recently was that some federal governments, especially in Europe’s extremely indebted south, had less financial freedom to support their companies and employees than others. This might develop extreme competitive distortions in the single market and emphasize financial divergence in the eurozone, threatening the stability of the single currency.

“We need to make sure that we protect the functioning of the internal market,” Spain’s financing minister Nadia Calvi ño informed the FEET inApril “It cannot be that some countries are able to support their economies in a more generous manner than others.”

Early actions to the pandemic supported the contention. Liquidity support to companies and in many cases direct federal government purchases of business bonds represent the bulk of public help in all of Europe’s huge economies. By late March Germany had actually allocated a massive EUR756 bn in credit warranties for its business, almost 8 times as much as Spain or Italy, although they have actually because doubled their dedications.

In May, the European Commission stated Germany alone represented simply over half of total state help in the EU. German federal government support for air provider Lufthansa is 9 times …

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