During the Covid-19 process, economic difficulties have been experienced in all areas. Exports and imports were interrupted. Large enterprises and factories were closed. Not only large businesses, but also small businesses have been in big trouble. At this point, the public applied to banks for loans. Apart from that, how have governments helped with credit? What are government-guaranteed loans? In this article, we will seek answers to these questions.
There is a different mechanism put into practice by many countries. In order to facilitate companies' access to loans, public guarantees were given to new loans. In Italy, a decree made it possible to recapitalize certain public liquidity funds. This makes it possible to guarantee businesses up to 130 billion euros in new loans.
This amount was increased to more than 400 billion euros with a later decree. This new decree provides guarantees of 200 billion euros, covering 70% to 90% of new loans, of which 30 billion are reserved for SMEs. In addition, public guarantees for the export sector were increased by 200 billion.
In Spain, the National Development Bank offers 100 billion guarantees to businesses and the self-employed. These guarantees are expected to mobilize up to 200 billion in liquidity. The leverage effect seems less significant for now, given the loans already granted.
Garanti covers 80% of new loans and loan renewals to SMEs and self-employed. For the rest of the companies, the guarantee will cover 70% of new loans and 60% of loan renewals. Other guarantees are offered to the most vulnerable sectors.
Particularly for exporters, certain reinsurance mechanisms have been established in France for the payment of credit guarantees. This amount amounts to 327 billion for starters. These mechanisms do not have any a priori impact on the budget, other than the activation of guarantees on certain loans.
A payment of 20 billion was also defined for the capital contribution of the French State to companies in distress. In the United Kingdom and the United States, credit guarantee measures of £300 billion and $454 billion provided through the Covid Corporate Finance Facility were taken in coordination with the Bank of England and the Federal Reserve.
Regarding GDP, it is in Germany where public guarantees are most important. The federal government has set up an economic recovery fund specifically for large companies with a turnover of more than 50 million euros or more than 250 employees.
The Fund provides 100 billion Euros for corporate recapitalizations through equity investments, 400 billion Euros for loan guarantees and up to 100 billion Euros for private corporate loan refinancing programmes.
Added to this is 50 billion bridge loans for small businesses and independent entrepreneurs. These loans, with 3 months grace period, will represent between 9,000 and 15,000 Euros for three months.
Other Precautions
In addition to the state's support of the people in terms of business economy, the people also need support in the health sector.
Beyond direct support for households or businesses, additional spending allocated to the health system to respond to a health emergency has been voted in. The amount of this health expenditure amounts to 61.3 billion Euros in Germany especially to support medical equipment and vaccination.
In Italy, an additional 10 billion Euros of public expenditure has been allocated, in particular for the recruitment of 30,000 caregivers, additional investment in public hospitals and strengthening National Education and training budgets. As for the British government, £15 billion has been earmarked for international aid, investment and additional operating expenditure for ministries and security.
The United States has freed up $492 billions of discretionary spending, some of which is allocated to health and social services. Also, due to the institutional architecture of the United States, the federal government is transferring $150 billion to help them cover expenses related to the pandemic.
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In Spain, from the start of the pandemic, the central State has expected the release of funds for the regions to support health-related emergency measures. In mid-June, permission was granted for a new transfer of 16 billion over 6 months, 9 billion of which was given directly.
This fund is designed for exceptional health expenditures. It also adopted two support schemes targeting strategic sectors of the economy: the automotive sector (3.725 billion) and the tourism sector (4.25 billion).
No additional transfers are currently being considered in Germany. In France, additional health expenditures were incurred from the management of the health crisis.
The public hospital system and the wages of nurse staff have been reassessed and estimated at 8 billion. In addition, 1 billion euros in exceptional solidarity assistance will be paid to beneficiaries of social minimums.
In our next article, we will discuss the budgetary effects. Don't forget to follow the series :)
Yaşam Ayavefe
