Analytics, Business, Covid-19, EU – Baltic States, Financial Services, Modern EU

The complexity of the present pandemic crisis lies in the fact that these “critical issues” have uncovered weak spots in almost all spheres of natural and social sciences: therefore the crisis is more than “just” a medical problem. Actually, the crisis’ consequences are more complex requiring urgent and perspective-oriented answers from political, economic and other sectors of social and natural sciences. 

No doubt that the post-pandemic period will witness the appearance of several new strategies in national governance with a solid involvement of digital technologies, artificial intelligence, robotics, internet of things (IoT), etc.    

Providing truth and understanding on the current challenges is the modern science community’s mission being in the frontline of social progress. It is quite clear that in the Baltic States’ governance only the scientific community can deliver the most optimal means and provide proper advises in dealing with the post-pandemic period while showing recovering instruments in economic growth, peoples’ health and general wellbeing.

Social distancing, self-isolation and lockdowns will sooner or later come to an end; the only things left would those of uncertainty as to what the society at large will look like. In fact, the uncertainty can be reduced to a single question: how to sustain peoples’ welfare, which is the only thing that the governing elites shall be worried about… 

Academic communities in the Baltic States have been always serving the public and governments as the leading and most significant research facilities during least centuries: for example, the Latvian Academy of Sciences was established more that 200 years ago!   

The governing elites have to keep on working on the secured health and social services, with extended protection and wellbeing, in particular, investing in the front-line research, education and skills. 

As to the social agenda, the EU leaders have had several ideas to soften the bruising economic fallout of the coronavirus and growing political divisions along European North-South and East-West sidelines. Thus, during the crisis, the Commission announced at the end of March a pan-European unemployment reinsurance scheme of up to €100 bn to support the member states’ efforts to mitigate the skyrocketing numbers of people out of occupation.

Some governments’ proposals are dealing with the so-called “corona bonds” (introduced by Austria, Germany, the Netherlands and Finland), much to the dismay of Italy and Spain, the EU states most hardly hit by the virus. Unemployment reinsurance is something the EU trade unions have long called for: it is again in the Commission’s plans and the epidemic propelled it forward. The commission promised to adopt a draft “as soon as possible” because unemployment numbers “are really exploding,” said Nicolas Schmit, European commissioner for jobs and social rights. For example, a proposal for a European minimum wage is being discussed among the EU institutions despite possible delays due to the crisis: the Commission is confident that all the EU member states will finally agree on that. 

The global community also provides its impetus into the revealing the pandemic’s consequences. Thus, the United Nations Department of Economic and Social Affairs (UN DESA) launched in start of April three briefing papers targeting the pandemic social and economic impacts through the public policy recommendations: a) analysing the global economic situation and prospects, b) addressing the social crisis through fiscal stimulus plans, and c) the crisis and turmoil in financial markets. See briefing papers in: https://www.un.org/development/desa/en/covid-19.html

Scientists at the frontline

The post-coronavirus period would mean that major changes will take place not only in peoples’ lives but also in government decision-making and socio-economic development in general. Scientists are racing presently to develop a remedy for pandemic and deliberating on the aftermath growth patterns; most of them are already getting used (generally being forced to) working from homes with endless cups of tea/coffee while exploring digital facilities.  

But, will the Baltic States’ elites be able to bridge the previous -not really working growth models - with the new long-awaited socio-economic priorities in order to develop national measures to sustain the economy’s recovery? How long citizens in the Baltics will tolerate a “lock-down life” before pushing back against their governments?

Sooner or later the Baltic States will come out of this pandemic crisis; however, the social and economic consequences will be felt through a much longer time. The governments and academia will enter a difficult period which at the end of the day will require “concrete political actions” already are seemingly taking shape.

Present division of competence in the Baltic States’ academies is adequate to the necessities of the main trends in national science and technology development. Thus, in Latvian Academy of Sciences, LZA there are four main divisions:

- The division of physical and technical sciences dealing with advanced technologies for industry, manufacturing, for computer science and engineering, for research in chemical physics, as well as in energy-environmental policy and etc. This division will be forced to design the Latvian industrial and manufacturing perspectives, as well as supporting instruments for startups and scale-ups;

- The division of chemical, biological and medical sciences, which is dealing with chemistry, biology, organic synthesis, microbiology and virology, as well as with wood chemistry and bio-medical research. This division is both in the frontline of actions combating the pandemic and in formulating the perspective national actions in facing similar threats.  

- The division of agriculture and forestry, with such directions as life science and technology, food safety, animal health and natural environment, etc. To stay competitive in tomorrow’s world and to achieve national and European goals of climate neutrality, the states must now turn to addressing the economy’s longer-term challenges. In this regard, the new European Green Deal is a perfect impetus towards modern agriculture, with possible involvement of digital means and sustainable growth models. 

More in: Sustainability through digital means: inherent connections. In:

 http://www.baltic-course.com/eng2/modern_eu/?doc=153777; EU’s “green deal”: changing power structures is needed. In: http://www.baltic-course.com/eng2/modern_eu/?doc=152269.

- The division of humanities and social sciences, dealing with e.g. demography, economics, law, political science, sociology, etc. To overcome the post-pandemic situation, this division is to elaborate most optimal guidelines pertinent for national perspective development: first of all in perspective national “economic immunity” policy, but also in digital economy/society issues, in “smart specialisation”, in modern education policy and new skills.  

The link to the LZA’s Yearbook in: http://www.lza.lv/index.php?option=com_content&task=view&id=5522&Itemid=43 

Three Baltic States take part in the hackathon cooperative initiative headed by Estonian partners. The “hack the crisis” movement began recently in Estonia and has now reached over 40 countries, with more than 100 thousand participants. "We have to take a long hard look at what could happen to our economy, how we have been handling social relationships, how resilient our social and healthcare systems are, and how we could support the creative industries. We must also develop methods for dealing with similar situations in the future”, said former Estonian president T. H. Ilves, who is the spokesperson for the global hackathon that connects the international technology community.

On hackathon cooperation in:

http://www.baltic-course.com/eng2/good_for_business/?doc=155061

Financial support: generally and for SMEs

The EU institutions have adopted already two corona virus’s rescue “packages”; the first - Coronavirus Response Investment Initiative, adopted on 13 March 2020 for up to June 2020 – was concentrated on the immediate mobilization of structural funds to allow for a prompt response to the crisis. In this regard, a number of very important changes have been introduced that extended the scope of support of the EU funds, while providing immediate liquidity with flexibility in program amendments. Hence, the first package provided three elements of financial support: about €8 billion of immediate liquidity to accelerate up to €37 billion of European public investment, flexibility in applying EU spending rules and extending the scope of the EU Solidarity Fund. More in Commission’s press release at: https://ec.europa.eu/commission/presscorner/detail/en/qanda_20_458

The second package, adopted on 2 April 2020, Coronavirus Response Investment Initiative Plus (CRII+), introduced additional “extraordinary flexibility” to increase support from all European Structural and Investment Funds, mainly European Regional Development Fund, the European Social Fund and the Cohesion Fund. EU states may request amendments to operational programs and use a 100 per cent of EU co-financing rate to apply for financial year 2020-2021. Such requests can be made during the accounting year starting in July 2020 and ending in June 2021.

More in: https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_574

Therefore, the total European-wide support is presently at the level of about € 93 billion; besides, the European Central Bank has approved an additional asset buying program, worth € 750 billion, to make financing available to the EU member states on favorable terms. The work is underway on the European Stability Mechanism (ESM) instruments, which would allow the states to apply for ESM financing in the amount of 2% of the member states' GDP. Hence, all EU member states are having sufficient means and access to financial markets to finance their recovery measures. 

In this regard, Commission vice-president, V. Dombrovskis acknowledged that these resources shall be aimed at preserving businesses and jobs and a quick recovering of national economies, as the crisis indulges into additional insolvencies and layoffs, while resulting in long-term socio-economic problems.  

Source: http://www.baltic-course.com/eng2/analytics/?doc=155037. 

Specifically for the healthcare systems in the states, the Commission is mobilizing €3 billion from the EU budget, of which €2.7 billion will be channeled through the Emergency Support Instrument and €300 million though the so-called rescEU medical equipment capacity. 

More in: https://ec.europa.eu/commission/presscorner/detail/en/QANDA_20_577

The EU’s message is that along existing financial instruments (e.g. the bailout fund ESM and the EU’s investment bank EIB), the member states should be more creative and explore the existing instruments and consider alternatives, as soon as the previous are inadequate. Hence, the states’ academic communities shall put to the discussion concrete, well-justified and effective proposals, which could help to step up an optimal response: all arguments shall be commensurate with the modern and future challenges. The states and the EU institutions would have an ability to put the necessary funding in place both to protect people’s health and be able to support economies, as well as getting people back to work as quickly as possible. 

Due to the fact that the Baltic States lack adequate funding agencies, the European Commission allowed extraordinary supporting financing from the budget, i.e. so-called state aid means (a temporary framework, contrary to the EU Stability Pact); e.g. Latvia was allowed to use € 250 mln. This amount is of about € 2 billion on top of other Latvian government’s rescue efforts.  

More in: http://www.baltic-course.com/eng2/modern_eu/?doc=154971

The Baltic States are quite active in acquiring the EU supporting facilities: thus, the European Commission has approved two Estonian state aid schemes worth €1.75 billion to support the Estonian economy in the context of the coronavirus outbreak. The first support scheme will be administered by the public Foundation KredEx; it will be open to companies in sectors such as agriculture, tobacco, cloning and genetic modification. The second scheme will be implemented by the public Estonian Rural Development Foundation and will be open to companies in all sectors in the Estonian territory. 

Source: https://ec.europa.eu/commission/presscorner/detail/en/IP_20_559  

The most important part of the present EU’s financial support for the states (in contrast to the austerity measures imposed about a decade ago) The European Stability Mechanism, ESM “already permits eurozone countries to borrow capital together on the same favorable conditions. For Italy, this would mean a fresh injection of €39 billion, and for Spain, €28 billion. They should be allowed to use this money for all necessary expenditures to fight the coronavirus,” the EU finance ministers acknowledges during the video-conference in early April. During the last decade, only among the eurozone states, about €300 billion was distributed through ESM/EFSF. 

 Source: https://www.esm.europa.eu/financial-assistance

EU’s assistance to business in the states evolved in April into a new guarantee schemes: the actions fulfill the Commission’s commitment from this March to bring immediate relief to hard-hit SMEs with money available already in April. It is part of the package of measures announced by the EIB Group in March designed to rapidly mobilise support for EU’s SMEs and mid-caps. The €1 billion from the EFSI under the COSME Loan Guarantee Facility and the InnovFin SME Guarantee under Horizon 2020 allows the EIF to provide guarantees worth €2.2 billion to financial intermediaries, unlocking €8 billion in available financing. 

The guarantees will be offered through the EIF to the market, via a call for expressions of interest issued to several hundred financial intermediaries, comprising banks and alternative lenders. The guarantees provide, generally, a simplified and quicker access to the EIF support, including: a) a higher risk cover – up to 80% of potential losses on individual loans (as opposed to the standard 50%); b) focus on working capital loans across the EU, and c) allowing for more flexible loan’s terms, including postponement, rescheduling or payment holidays.  

Reference to: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_459

Poland has acquired from Commission a guarantee scheme on existing and/or new loans to support companies affected by the coronavirus outbreak; the scheme will enable the provision of public guarantees amounting to up to PLN 100 billion (about €22 billion as to 4.04.2020).

The scheme, which will be accessible by medium and large Polish companies active in all sectors, aims at limiting the risk associated with issuing loans to those companies that are most severely affected by the economic impact of the current crisis. It will help businesses cover their immediate working capital or investment needs and ensure that they have sufficient liquidity to continue their activities.

https://ec.europa.eu/commission/presscorner/detail/en/IP_20_596

Quite remarkable, that the Polish government has already notified the public on some ways to support business (out of ten measures only some are mentioned here): - Direct grants, equity injections, selective tax advantages and advance payments of up to €800,000 to a company to address its urgent liquidity needs. - State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs. For loans up to the nominal value of €800,000, the guarantees can cover 100% of the risk. - Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks' customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks. - Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak. -Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel. 

After this crisis, all EU states will have to contend with a much higher national debt; the governments must make this new debt manageable; that means for example, loans with long maturities and low interest rates.

National responses to the pandemic

This is probably the first global crisis where the full power of technology, social media and AI can be deployed. However, in this process the technology used to tackle the crisis shall not undermine people’s privacy and other freedoms. Recently created Commission’s crisis response team – the European Democracy Action Plan - will address some of the issues to ensure that platforms are more transparent and accountable being able to improve resilience of European democratic systems in the digital age. 

Alongside the EU plans and recommendations, the member states have to use their own means: e.g. national rescue plans. In extraordinary situations, like the one with COVID-19, some specific measures shall be taken. In this regard, a “unifying role” belongs to the national academic communities: i.e. scientists know better what should be done in creating adequate means to improve states long-term resilience. 

The digital applications have become a most important direction in perspective growth. Together with artificial intelligence’s means (AI) in general and those in decision-making, the outcomes of the quickly growing digital technologies are already providing for sufficient “drivers” for impacts in economy, business, social and individual spheres. Already in 2016, the Davos’ forum president Klaus Schwab described the fundamental changes in peoples’ lives, work and inter-personal relations forced by the digital technology. 

In his 23 “deep shifts”, the following recommendations have been made: a) with a rate of occurrence up to 80%: implantable technologies, new interfaces, wearable internet, supercomputers “in the pocket”, internet of things, smart cities and driverless cars; b) with a rate of occurrence of a about 50 %: artificial intelligence and decision-making, robotics and services, sharing economy, 3D printing in general and in human health, neurotechnologies (monitoring brain activity), etc. More in:

https://www.weforum.org/about/the-fourth-industrial-revolution-by-klaus-schwab

Positive digital efforts are most visible in Estonia. Based on the videoconferencing platform Zoom, which become operating only after COVID-19 and presently is one of the most powerful digital company in the world (some say it already bought Apple and, probably, Amazon), it has tweeted out a screenshot, helpfully leaving in the call’s ID number so all people can join the chat next time and provide views on the “herd immunity’s” strategy. 

Some states around the world are having a completely different approach: in order to minimize coronavirus disruption it is better “pretend” it doesn’t exist, which is what the authoritarian government in Turkmenistan was doing. It has banned all uses of the word “coronavirus” from public discourse, with state-controlled media ordered not to use the word at all and police arresting people who utter the word in public or who wear a face mask. 

Bottom-line

National agenda in the states requires quick responses: most urgently for a wider public (which is quite natural as it is the people that are suffering most), but then they are important for politicians, economists, entrepreneurs, educators, etc. All walks of life are worried and posing one general question: how our life is going to look like after the pandemic crisis? The answer is both complicated and simple: the former depends on the elaborated national priorities (adopted after consultations with academic community), the latter depends on the general public. Besides, everything depends on the governing elites’ ability to listen to the opinion of the scientific community, as it is the scientists who know better how the people’s welfare shall be maintained; the rest depends on politicians and their patriotism, which means the love for the country!