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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.

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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Latest Eurobarometer survey (July-August): Economic situation is EU citizens' top concern in light of the coronavirus pandemic

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In a troubled period marked by the coronavirus pandemic, trust in the EU remains stable and Europeans trust the EU to make the right decisions in response to the pandemic in the future. In the new Standard Eurobarometer survey released today, European citizens identify the economic situation, the state of member states' public finances and immigration as the three top concerns at EU level. The economic situation is also the main concern at national level, followed by health and unemployment.

In the new Eurobarometer conducted in July and August, concern about the economic situation is reflected in the perception of the current state of the economy. 64% of Europeans think that the situation is ‘bad' and 42% of Europeans think that their country's economy will recover from the adverse effects of the coronavirus outbreak ‘in 2023 or later'.

Europeans are divided (45% ‘satisfied' vs 44% ‘not satisfied') regarding the measures taken by the EU to fight the pandemic. However, 62% say they trust the EU to make the right decisions in the future, and 60% remain optimistic about the future of the EU.

  1. Trust and image of the EU

Trust in the European Union has remained stable since autumn 2019 at 43%, despite variations of public perceptions during the pandemic. Trust in national governments and parliaments has increased (40%, +6 percentage points and 36%, +2 respectively).

In 15 Member States, a majority of respondents says they trust the EU, with the highest levels observed in Ireland (73%), Denmark (63%) and Lithuania (59%). The lowest levels of trust in the EU are observed in Italy (28%), France (30%) and Greece (32%).

The proportion of respondents with a positive image of the EU is the same as that with a neutral image (40%). 19% of respondents have a negative image of the EU (-1 percentage points).

In 13 EU member states, a majority of respondents has a positive image of the EU, with the highest proportions observed in Ireland (71%), Poland and Portugal (both 55%). In 13 other member states, the EU conjures up a predominantly neutral image for respondents, with the highest proportions observed in Malta (56%), Spain, Latvia and Slovenia (all 48%).

  1. Main concerns at EU and national level

Citizens mentioned the economic situation as the most pressing issue facing the EU - over one-third (35%) of all respondents, a strong increase of 16 percentage points since autumn 2019, and rise from third to first concern. Concern about the economic situation has not been this high since spring 2014.

Europeans are also increasingly concerned about the state of member states' public finances (23%, +6 percentage points, the highest level since spring 2015), which moves from fifth to second place on a par with immigration (23%, -13 percentage points), the latter now being at the lowest level since autumn 2014.

In the midst of the coronavirus pandemic, health (22%, new item) is the  fourth most mentioned concern at EU level. The issue of the environment and climate change has lost ground, down 8 percentage points to 20%, followed by unemployment (17%, +5 percentage points).

Similarly, the economic situation (33%, +17 percentage points) has overtaken health as the most important issue at national level, rising from seventh to first position. Although in second position, health has had a notable increase in mentions since autumn 2019 (31%, +9 percentage points), taking it to its highest ever level over the past six years.

Unemployment has also increased considerably in importance (28%, +8 percentage points), followed by rising prices/inflation/cost of living (18%, -2 percentage points), the environment and climate change (14%, -6 percentage points) and government debt (12%, +4 percentage points). Mentions of immigration (11%, -5 percentage points), are at their lowest level for the past six years.

  1. The current economic situation

Since autumn 2019, the proportion of Europeans who think that the current situation of their national economy is ‘good' (34%, -13 percentage points) has declined considerably, while the proportion of respondents who judge this situation to be ‘bad' has increased sharply (64%, +14 percentage points).

At national level, a majority of respondents in 10 countries says that the national economic situation is good (down from 15 in autumn 2019). The proportion of respondents who say the situation of their national economy is good ranges from 83% in Luxembourg to 9% in Greece.

  1. The coronavirus pandemic and public opinion in the EU

Europeans are divided on the measures taken by the EU institutions to fight the coronavirus outbreak (45% ‘satisfied' vs 44% ‘not satisfied'). However, a majority of respondents in 19 Member States is satisfied with the measures taken by the European Union institutions to fight the coronavirus pandemic. The highest positive figures are found in Ireland (71%); Hungary, Romania and Poland (all 60%). In seven countries, a majority of respondents is ‘not satisfied', especially in Luxembourg (63%), Italy (58%), Greece and Czechia (both 55%) and Spain (52%). In Austria, equal proportions of respondents are satisfied, and not satisfied (both 47%).

However, more than six Europeans in ten trust the EU to make the right decisions in the future (62%). The most frequently mentioned priorities for the EU's response to the coronavirus pandemic are: establish a strategy for facing a similar crisis in the future and develop financial means to find a treatment or vaccine (each 37%). 30% think that developing a European health policy should be a priority.

Europeans' personal experiences of confinement measures were very diverse. Overall, close to three Europeans in ten say that it was fairly easy to cope with (31%), while a quarter say it was fairly difficult to cope with (25%). Finally, 30% say that it was ‘both easy and difficult to cope with'.

  1. Key policy areas

Asked about the objectives of the European Green Deal, Europeans continue identifying ‘developing renewable energy' and ‘fighting against plastic waste and leading on the issue of single-use of plastic' as the top priorities. More than one third think the top priority should be supporting EU farmers (38%) or promoting the circular economy (36%). Just over three in ten think reducing energy consumption (31%) should be the top priority.

Support for the Economic and Monetary Union and for the euro remains high, with 75% of respondents in the eurozone in favour of the EU's single currency. In the EU27 as a whole, support for the eurozone has increased to 67% (+5).

  1. EU citizenship and European democracy

A majority of people in 26 EU member states (except Italy) and 70% across the EU feel that they are citizens of the EU. At a national level the highest scores are observed in Ireland and Luxembourg (both 89%), Poland (83%), Slovakia and Germany (both 82%), Lithuania (81%), Hungary, Portugal and Denmark (all 80%).

A majority of Europeans (53%) say they are satisfied with the way democracy works in the EU. The proportion of respondents who are ‘not satisfied' has increased, by 3 percentage points since autumn 2019 to 43%.

  1. Optimism for the future of the EU

Finally, in this troubled period, 60% of Europeans say they are optimistic about the future of the EU. The highest scores for optimism are observed in Ireland (81%), Lithuania and Poland (both 75%) and Croatia (74%). The lowest levels of optimism are seen in Greece (44%) and Italy (49%), where pessimism outweighs optimism, and France, where opinion is evenly divided (49% vs 49%).

Background

The ‘Summer 2020 – Standard Eurobarometer' (EB 93) was conducted face-to-face and exceptionally completed with online interviews between 9 July and 26 August 2020, across the 27 EU member states, in the United Kingdom and in the candidate countries[1]. 26,681 interviews were conducted in the 27 member states.

More information

Standard Eurobarometer 93

[1] The 27 European Union (EU) Member States, United Kingdom, five candidate countries (Albania, North Macedonia, Montenegro, Serbia and Turkey) and the Turkish Cypriot Community in the part of the country that is not controlled by the government of the Republic of Cyprus.

 

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German health minister expects COVID-19 vaccine in early 2021 - Spiegel

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Germany’s health minister expects a COVID-19 vaccine to be available early next year and believes a large proportion of Germans who want the shot could be vaccinated within six to seven months of enough doses being available, writes Caroline Copley.

Jens Spahn (pictured) was quoted as saying in Der Spiegel that a vaccine could be available in January, or maybe in February or March, or even later, but said there would be no compulsory vaccination.

“Of course, it would be best if a vaccine could prevent new infections. But it would also be a benefit if it makes the course of the disease milder,” said Spahn, who tested positive for coronavirus this week.

Daily Bild reported that Germany is making preparations to start vaccinations against the coronavirus before the end of the year.

The paper said the health ministry plans to create 60 special vaccination centres to ensure the vaccines can be stored at the proper temperature and has asked the country’s 16 federal states to provide addresses for them by Nov. 10, Bild reported without citing its sources.

Spahn told Der Spiegel that Germany was securing “considerably more” doses of vaccines then it would potentially need, and said it could sell any surplus shots to other countries or donate them to poorer nations.

He has asked experts, including the ethics council and the National Academy of Sciences Leopoldina, to decide who should be tested first, but said nurses, doctors and health professionals would be at the top of the list.

Spahn said he wanted to set up a digital appointment system to organize the vaccinations, as well as an app to record possible side-effects.

While ideally there would be a single digital tool to do all this, experience has shown that things can go quickly wrong when being developed under time pressure, so the ministry is planning “several stand-alone solutions”, he said.

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'It is terrifying': Europe braces for lengthy battle with COVID

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Europe faces a lengthy battle against the coronavirus at least until mid-2021, France has warned, as anxious governments introduced ever more restrictions to curb the disease once again accelerating through the continent, write and

Europe’s daily infections have more than doubled in the past 10 days, reaching a total of 7.8 million cases and about 247,000 deaths, as a second wave right before winter has crushed economic revival hopes.

“When I listen to scientists I see that projections are for at best until next summer,” French President Emmanuel Macron said during a visit to a hospital near Paris.

France, which passed 1 million cases on Friday (23 October) with a new record daily total of more than 42,000, has been one of the hardest-hit nations and has imposed curfews.

COVID-19 patients already occupy nearly half of France’s 5,000 intensive care beds and one of the government’s advisers warned the virus was spreading more quickly than in spring.

Further curbs are underway by governments desperate to avoid a repeat of blanket lockdowns that brought some control in March and April but strangled economies.

“We are all afraid,” said Maria, a 73-year old pensioner in the Slovakian town of Dolny Kubin, where officials were piloting a testing scheme. “I see what’s happening and it is terrifying.”

Belgium, another of the worst-hit countries, whose foreign minister went into intensive care this week, further limited social contact and banned fans from sports matches.

In the Czech Republic, with Europe’s highest per capita infections, Prime Minister Andrej Babis moved to sack his health minister for apparently flouting rules on masks after a meeting in a restaurant that should have been closed.

In Spain, which passed the 1 million case milestone earlier this week, two regions, Castilla and Leon and Valencia, urged the central government to impose night-time curfews.

Official data show Spain already has the highest number of cases in Europe but the real picture may be even worse according to Prime Minister Pedro Sanchez, who said a nationwide antibody study suggested the total may be over 3 million.

“If we don’t follow precautions, we are putting the lives of those we love most at risk,” he said.

How long governments will be able to resist lockdowns is uncertain. The governor of Campania, the southern Italian region around Naples which has already imposed a curfew and shut schools, called for a total lockdown, saying “half measures” were not working.

“It is necessary to close everything, except for those businesses that produce and transport essential goods,” Vincenzo De Luca said.

While health services have not so far been overwhelmed to the extent they were in the first wave, authorities have warned of a likely surge in demand for intensive care beds as colder weather forces more people indoors and infections spread.

Italy’s top public health body said the situation was approaching critical levels in many regions and said complete tracing of contact chains had become impossible.

With its own hospitals under increasing strain, the Netherlands began transferring patients to Germany again, after dozens were treated in its larger neighbour during the earlier phase of the crisis.

But public support seen at the start of the crisis has steadily eroded amid a welter of often contradictory public information on the latest restrictions and growing fears about the economic costs.

Underlining the threat, a business survey showed service sector companies cutting back heavily as more and more consumers stayed home, raising the likelihood of a double dip recession this year in Europe’s single currency zone.

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