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Securitize EU health risks to limit national fiscal deficits

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Systemic crises often have significant political consequences. In Europe, however, these consequences have often been resolved through a strengthening of the European Union. Take the 2008-2011 financial and economic crisis for example, this led to new regulatory and supervisory arrangements for financial institutions, as well as the implementation of EU-wide contingency funds, writes Professor David Veredas, Vlerick Business School.

The Great Lockdown Crisis of 2020, and the public health and economic consequences of this, must be learned from. A key lesson is the need for deeper union across the European health care sector. Though we do not know when the next health crisis will strike, COVID-19 is unlikely to be the last. The changing climate, the emergence of new pathogens, and the re-emergence of others poses significant risks to the health security of the EU. Plus, there are chemical, radiological, and nuclear risks to be considered. Risks that demand a similar response.

The current and unprecedented COVID-19 public health crisis has completely overstretched the structures and mechanisms of the European Union, in particular those that deal with emergencies. In order to be ready for the next health emergency, the EU needs effective and unified response arrangements, and collaboration between member States, instead of the country-specific approaches we have seen across all 27 member States. It also needs a significant financial cushion for rapid and predictably increasing funding.

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So how could we ensure that a collaborative response is not only possible, but also affordable and realistic for EU member states? The key to this relies on financial innovation. I, alongside other Vlerick Business School academics, propose the creation of the Emergency Health Financing Facility (EHFF in short).

In its broader version, this facility integrates some of the existing EU emergencies structures, namely the Emergency Support Instrument, and adds a new layer for the most extreme emergencies that does not increase the burden on public finances. This new layer essentially consists of securitizing health emergency risks in the form of fixed income securities that are sold to institutional investors. The Facility follows the growth of market-based risk financing facilities across global and regional initiatives, led by the World Bank.

The EHFF finances can be used for ramping up medical supplies, testing kits, building infrastructures, and sudden increases of personnel, amongst others, in line with rescEU and the Emergency Support Instrument. This is a vital necessity for future crises, after seeing the difficulties at the beginning of Lockdown’s for EU healthcare systems to obtain medical supplies such as PPE, and enough testing kits to have a desired impact on controlling the spread of the virus.

Specifically, the EHFF is a health risk management tool that provides liquidity when it is most needed, and without allocating large amounts of cash in advance. It will have positive spill overs on the public finances of EU countries, in the sense that member states will be better off, as part of the EHFF, than managing the risk of a health emergency individually.

The EHFF is therefore a cost-effective solution that protects national budgets, which are going to be under serious strain for the years to come, from the impacts of health emergencies, and allows all Member States to have the funding to tackle these future crises.

Similar facilities exist or are being considered in other parts of the world. The most prominent cases are the Pandemic Emergency Facility of the World Bank, the ASEAN+3 Disaster Risk Insurance Facility, and the Pacific Alliance Catastrophe Bonds that offers earthquake coverage to four South American countries. These have been deemed successful in a cross-country wide approach to tackling large crises, and the EU must follow suit with its own to protect Member States efficiently and fairly.

The securitization of risk goes back to the early 1990s. The insurance industry (reinsurers in particular) were pioneers due to the hurricanes in the Caribbean. Securities that result from risk securitization are known as Insurance Linked Securities, or ILS in short. Catastrophe bonds are the predominant form of ILS. The market of ILS has increased steadily since the mid-90s: from $785.5m in 1997 to $41.8bn in 2020. The predominant risks covered are natural catastrophes, like named storms and earthquakes, though they also cover mortgage, operational, and mortality risks, among others.

It’s safe to say that securitizing the potential risks of another public health crises, or even chemical, radiological, and nuclear risks, is certainly not unheard of. The EU prides itself on collaboration, fairness, and partnership – we must reflect this in our future crises responses, and a joint EHFF is the way to do so. Not only does it strengthen the European Union further, therefore improving the response, but due to its financial innovation, it comes at no financial burden to any EU member States fiscal budgets.

David Veredas (pictured) is a professor of Financial Markets at Vlerick Business School. He is an elected member of the European Shadow Financial Regulatory Committee, and a founding member of the Society for Financial Econometrics.

Reference: Ashby, S., Kolokas, D., and Veredas, D. (2020) An Emergency Health Financing Facility for the European Union. A proposal. Vlerick Business School policy paper #10.

 

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Norway again postpones end to COVID lockdown

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A man wearing a protective mask carries shopping bags as he walks on the streets of Oslo following an outbreak of the coronavirus disease (COVID-19), in Oslo, Norway. NTB Scanpix/Hakon Mosvold Larsen via REUTERS

Norway postponed for a second time on Wednesday (28 July) a planned final step in the reopening of its economy from pandemic lockdown, due to the continued spread of the Delta variant of COVID-19, the government said, writes Terje Solsvik, Reuters.

"A new assessment will be made in mid-August," Health Minister Bent Hoeie told a news conference.

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Measures that will be kept in place to halt the spread of COVID-19 include bars and restaurants being limited to table service and limits of 20 people on gatherings in private homes.

The government in April launched a four-step plan to gradually remove most pandemic restrictions, and had completed the first three of those steps by mid-June.

On July 5, Prime Minister Erna Solberg said the fourth step could come in late July or early August at the earliest because of concerns about the Delta coronavirus variant. Read more.

About 80% of adults in Norway have received a first dose of a COVID-19 vaccine and 41% of adults are fully vaccinated, according to the Norwegian Institute of Public Health.

Thanks to an early lockdown in March 2020 and tight restrictions that followed, the nation of 5.4 million people has seen one of Europe's lowest rates of mortality from the virus. Some 800 Norwegians have died from COVID-19.

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EU signs deal with GSK for supply of potential COVID drug

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Company logo of pharmaceutical company GlaxoSmithKline is seen at their Stevenage facility, Britain October 26, 2020. REUTERS/Matthew Childs/File Photo

The European Union has signed a contract with GlaxoSmithKline (GSK.L) for the supply of up to 220,000 treatments of its investigational monoclonal antibody therapy sotrovimab against COVID-19, it said on Wednesday (28 July), write Francesco Guarascio with additional reporting by Jo Mason, Reuters.

The drug, which is developed together with U.S. firm Vir Biotechnology (VIR.O), can be used for the treatment of high-risk coronavirus patients with mild symptoms who do not require supplemental oxygen, according to the Commission.

The deal is a boost to GSK work on potential treatments for COVID-19 after the company played a limited role in the development of vaccines. Rather than making its own coronavirus shot, GSK has focused on supplying its booster to other developers and has partnered with Sanofi (SASY.PA) to develop a jab.

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GSK confirmed the deal in a statement on Wednesday, saying it represented "a crucial step forward for treating cases of COVID-19" in Europe.

The drug is currently being assessed by the European Medicines Agency (EMA) under a rolling review.

It has received emergency authorisation in the United States to treat mild-to-moderate COVID-19 patients who are at high risk of developing a severe infection.

The contract has been backed by 16 of the 27 EU states, which can buy the drug only after it is approved by EMA or by national drug regulators. The price agreed for potential purchases has not been disclosed. A spokesman for the Commission declined to comment on the matter.

Monoclonal antibodies mimic natural antibodies that the body generates to fight infection.

The deal with GSK follows a contract the EU signed in April with Swiss pharmaceutical giant Roche (ROG.S) to secure about 55,000 doses of a potential treatment based on a cocktail of monoclonal antibodies developed by Roche together with U.S. drugmaker Regeneron (REGN.O). Read more.

Apart from monoclonal treatments, the only other anti-COVID drug the EU has bought is Gilead's (GILD.O) remdesivir, an antiviral medicine. Last year, the EU reserved half a million courses after the drug obtained a conditional EU approval.

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Coronavirus disinformation: Online platforms take new actions and call for more players to join the Code of Practice

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The Commission has published the reports by Facebook, Twitter, TikTok, Microsoft and Google on measures taken in June to combat coronavirus disinformation. The current signatories and the Commission are also calling on new companies to join the Code of Practice on disinformation as it will help broaden its impact and make it more effective. Values and Transparency Vice President Věra Jourová said: “The COVID-19 disinformation monitoring programme has allowed to keep track of important actions put in place by online platforms. With new variants of the virus spreading and vaccinations continuing at full speed, it is crucial to deliver on the commitments. We look forward to the strengthening of the Code of Practice.”

Internal Market Commissioner Thierry Breton added: “The EU stood by its promise to deliver enough doses to safely vaccinate every EU citizen. All stakeholders now need to assume their responsibility to beat vaccine hesitancy spurred by disinformation. While we are strengthening the Code of Practice with platforms and signatories, we are calling for new signatories to join the fight against disinformation”. 

For example, TikTok's campaign supporting vaccination, with the Irish government, reached over one million views and over 20,000 likes. Google continued to work with public health authorities to show information about vaccination locations in Google Search and Maps, a feature available in France, Poland, Italy, Ireland, and Switzerland. On Twitter, users can now train automated systems to better identify violations of the platform's COVID-19 disinformation policy.

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Microsoft extended its partnership with NewsGuard, an Edge extension that warns about websites spreading disinformation. Facebook cooperated with international health authorities to increase public awareness of vaccine efficacy and safety and with Michigan State University (MSU) researchers to better detect and attribute deepfakes. These joint efforts need to continue in view of the persisting and complex challenges that online disinformation still presents. The Commission's COVID-19 disinformation monitoring programme has been extended until the end of 2021 and reports will now be published every two months. The next set of reports will be published in September. Following the recently published Guidance, the signatories have kicked off the process to strengthen the Code and launched a joint call for interest for potential new signatories.

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