The ECB announced, on March 12, 2020, a modest stimulus program: €120 billion in bond purchases and generous funding for banks to support their lending. The benchmark interest rate was kept on hold at minus 0.5%.  According to the ECB, this meager monetary support sufficed because the response to the crisis ‘should be fiscal first and foremost.’ It was not the bank’s job to close the spreads between the increasingly high yields of the periphery (the southern states) and the dropping yields of the core (the northern, wealthier states). As a result, Italian bond yields soared.
As criticism against the bank was growing, it responded by adopting the €750 billion Pandemic Emergency Purchase Program (PEPP), that was later increased to €1.35 trillion. Through the PEPP, the ECB bought the debt of eurozone states and highly-rated corporate debt. Because of the lack of central fiscal authority in the eurozone, comparable to the Treasury in the United States or the Finance Ministry in Japan, the ECB had to purchase the debt issued by all 19 eurozone governments proportionally to the size of their economies and population. The bank announced that it was ‘ready to do everything necessary within its mandate’ to help states deal with the pandemic. This included increasing its bond purchases, and the composition of such purchases, ‘as necessary and for as long as needed’ in order ‘to support the economy through this shock.’  This no-limits approach to the crisis was implemented while Italy was in the throes of the pandemic and its bond market was under tremendous stress. The yield on Italy’s 10-year bond was above 3%. The Greek equivalent traded above 4.1% compared with less than 1% just a few weeks before.
On March 24, 2020, it became clear that the ECB had liberated itself from previously self-imposed ceilings on how much of the debt of each eurozone state it was ready purchase. This was extraordinary. Unlike prior ECB programs, the PEPP, while still allocated proportionately, based on states’ economic size and population, was to be implemented in a ‘flexible manner’ allowing for ‘fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.’ The ECB could, therefore, buy more of the bonds of countries that were under stress due to the pandemic.
Furthermore, the ECB acted preemptively to address fears that the Italian government debt may be downgraded by the Credit Rating Agencies (CRAs).  It announced that securities that were eligible as collateral before April 7, 2020 would continue to be used as collateral even if downgraded. The announcement was a vote of confidence for the Italian debt given that the S&P and Moody’s, two CRAs, had placed Italian government bonds just two levels above junk status.
With the PEPP firmly in place, Italy was able to raise €16 billion and Spain €15 billion in the bond markets in late April 2020. The ECB has been credited for lowering significantly the cost of debt for these states and averting the monetary fragmentation of the eurozone. It accomplished this through extensive purchases of debt on the basis of needs of states. The ECB signaled that it was ready to absorb most of the new debt issued by eurozone states if this was necessary to quell the economic mayhem caused by the pandemic.
As if the pandemic was not enough, the ECB was still dealing with the after-shocks of the 2009 eurocrisis, the toxic debts that burdened the balance sheets of many private European banks. The EBC wanted to move the billions in non-performing loans (NPLs) from private banks’ balance sheets into a ‘bad bank’ established for that purpose. This was because NPLs were crippling banks’ lending ability, an ability they sorely needed to provide credit to the economy during the pandemic. In 2020, NPLs constituted 7% of the total loans granted in Italy, 10% in Portugal, 3% in Spain compared with 1% in Germany. Because of this backlog of NPLs, banks were unwilling to provide new loans, even in cases where governments were ready to backstop such lending. Ironically, politicians were urging banks to supply credit as ‘an act of love;’ but banks reminded them that a bank’s job is not to give out money; it is to provide credit.
In the midst of the pandemic, eurozone states continued to spar over whether it made sense to mutualize their debt. Many core states, Denmark, the Netherlands and Austria, were against the mutualization of eurozone debt, debt issued and guaranteed by all eurozone states. Peripheral states, Italy and Spain, on the other hand, insisted on issuing common debt, the so-called corona bonds, as a way to raise funds for the massive reconstruction that had to happen after the pandemic. Peripheral states feared that if they had to borrow all the money they needed, on their own, they would risk falling into a sovereign-debt crisis, similar to the one that rattled Greece for a decade. Issuing common debt could prevent the deepening of economic division in Europe: a stagnating south burdened by debt and a growing north with ample fiscal space.
An option for the peripheral states was to seek loans from the European Stability Mechanism (ESM). States, though, viewed the ESM, much like the International Monetary Fund (IMF), as political poison due to the draconian conditions it imposed for providing loans. Peripheral states argued that the eurozone was hit by an external symmetric shock and that no country should be treated as a pariah because none had mismanaged its finances.
Core states pointed out, though, that Italy had amassed €2.5 trillion in debt even before the pandemic. Italy’s debt-to-GDP ratio was 136% in 2019. Spain’s debt-to-GDP ratio was 97%. Because of these high debt ratios, core states urged the European Commission to investigate why certain states lacked the fiscal space to pay on their own for the costs of the post-pandemic reconstruction. The high debt ratios of peripheral states limited their fiscal space, the fiscal stimulus they could offer to revive their economies. To give an example, while the fiscal boost provided by Spain was 1.2% of its GDP, Germany’s fiscal stimulus was 4.4%.
In July 2020, after many acrimonious negotiations, the EU leaders agreed on a €1.1 trillion budget (for 2021 to 2027). This budget, the so-called Multiannual Financial Framework (MFF), targeted investment in digital and green infrastructure all through the EU.
The EU states also approved a €750 billion recovery fund, the Next Generation EU (NGEU) to help states deal with the fallout from the pandemic. The NGEU was touted as an act of solidarity because €390 out of €750 billion was distributed to states in the form of grants rather than loans. The distribution was based on the rate of unemployment and the drop in the real GDP of member states.
The $750 billion NGEU was financed by bonds issued by the European Commission in the capital markets on behalf of all EU states. The states authorized the Commission to borrow on their behalf in the capital markets by using their commitment to the MFF as guarantee. Taxes on a non-recycled plastic waste, on digital firms and on climate unfriendly imports were expected to be used to pay back the debt.
The MFF and the NBEU were the outcome of the joint collaboration between France and Germany. France insisted that solidarity, during a deadly pandemic, meant the provision of grants not just loans. France was able to eventually convince Germany that it was in its self-interest to be generous. The European Union has been a treasure trove for Germany. By integrating all the European countries into one, it provided German manufacturers with a huge domestic market. The adoption of the euro prevented countries with weaker industries and infrastructure from devaluing their currency to compete with Germany.
Another source of support for states was the Enhanced Conditions Credit Line (ECCL). The only requirement for accessing that line was for states to pledge that they would use it to support the financing of healthcare and COVID-19 cure and prevention costs. The ECCL remain opened until the crisis was over. Afterwards, states, that had obtained ECCL financing, were expected to remain committed to strengthening their economic and financial fundamentals.
The EU also created a fund, the temporary Support to mitigate Unemployment Risks in an Emergency (SURE), that provided loans to EU states to help them deal with the high unemployment caused by the pandemic. By March 2020, the average rate of unemployment in the EU was 7.4%, but job losses were much higher in the European periphery. Spain’s unemployment rate, for example, was 14.5% while Germany’s was only 3.5%.
The European Commission was able to muster an additional €2.7 billion from the EU budget to reactivate the Emergency Support Instrument that was used to strengthen the national healthcare systems of European states.
Another initiative was to gather unspent funds from the EU cohesion programs to establish the €37 billion Coronavirus Response Investment Initiative (CRII), later amended as CRII Plus. The CRII Plus funds were distributed like the EU structural funds, a large portion of which is devoted to supporting growth in Eastern European emerging-market economies. Because of this distribution, Italy received €2.3 billion, under the CRII Plus, while Hungary got €5.6 billion, despite the fact that Hungary did not suffer as much as Italy from the pandemic.
The European Union Solidarity Fund (EUSF) provided additional financial assistance up to €800 million. This assistance could be accessed by any country as long as the country’s emergency expenditures in the first months of the crisis were over €1.5 billion or more than 0.3% of its GNI.
The European Investment Bank created a pan-European fund of €25 billion. This fund could be leveraged to generate financing up to €200 billion for small- and medium-size companies hit particularly hard by the lock-downs imposed by governments.
The EU relaxed the ironclad budget deficit and debt rules. States experiencing a severe economic downturn, due to the pandemic, were given the leeway to run higher deficits and debts than those expected under normal circumstances. In the same spirit, the European Commission eased its rules against the state-aid of companies so that governments could help out ailing enterprises. France spent €8 billion to revive its car industry and Germany bailed out Lufthansa, an air carrier. By May 2020, states’ assistance to European companies amounted to €2.2 trillion. European states did whatever they could to forestall the acquisition of struggling European companies by US and Chinese firms and to foster ‘the strategic autonomy’ of the EU from both China and the United States. 
The EU dealt with economic crisis, brought by the pandemic, with a forceful set of policies. These monumental efforts, though, still fell short of what Europe had to do to foster growth. The EU needed massive amounts of investment, approximately 3% of European GDP annually, to escape the low-trend growth that had bedeviled the continent since the global financial crisis.
 ECB, Monetary policy decisions, Press Release, Mar. 12, 2020, https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200312~8d3aec3ff2.en.htmlf.
 ECB, Christine Lagarde and Luis de Guindos, Press Conference, Mar. 12, 2020, https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200312~f857a21b6c.en.html.
 ECB, Monetary Policy Decisions, June 4, 2020, Press Release, https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp200604~a307d3429c.en.html
 ECB, ECB announces €750 billion Pandemic Emergency Purchase Programme (PEPP), Press Release, Mar. 18, 2020, [hereinafter PEPP program] https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200318_1~3949d6f266.en.html.
 Christine Lagarde, Our response to the coronavirus emergency, ECB Blog, Mar. 19, 2020, https://www.ecb.europa.eu/press/blog/date/2020/html/ecb.blog200319~11f421e25e.en.html.
 Tom Fairless et al., ECB to Buy Bonds to Combat Economic Slowdown From Coronavirus, WSJ, Mar. 18, 2020, https://www.wsj.com/articles/ecb-seeks-to-mend-rifts-as-economic-clouds-gather-11584523534.
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 Elli Louka, The Global Economic Order: The International Law and Politics of the Financial and Monetary System 158-59 (2020).
 PEPP program, supra note 5. Emphasis added.
 On the CRAs and their power to move the markets, see Louka, supra note 9, at 279-81.
 ECB, ECB takes steps to mitigate impact of possible rating downgrades on collateral availability, Press Release, Apr. 22, 2020, https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200422_1~95e0sf62a2b.en.html.
 Anna Hirtenstein and Anna Isaac, Italian Bonds Rally after Country Avoids S&P Downgrade, WSJ, Apr. 27, 2020, https://www.wsj.com/articles/italian-bonds-rally-after-country-avoids-rating-downgrade-11587997076.
 Anna Hirtenstein, Investors Bet on ECB While Lapping Up Risky Government Bonds, May 18, 2020, https://www.wsj.com/articles/investors-bet-on-ecb-while-lapping-up-risky-government-bonds-11589801068.
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 Patricia Kowsmann et al., The Bank Backstop: Can Europe’s Lenders Weather the Coronavirus Crisis?, Apr. 14, 2020, https://www.wsj.com/articles/the-bank-backstop-can-europes-lenders-weather-the-coronavirus-crisis-11586823073.
 Louka, supra note 9, at 348-71
 On the establishment and role of the ESM, see Louka, supra note 9 at 165-66.
 On the austerity imposed by the IMF as a pre-condition for lending to countries in trouble, see Louka, supra note 9, at 239-50.
 Mehreen Khan, Straining the Ties that Bind the Eurozone, FT, Mar. 26, 2020.
 How Deep will Downturns in Rich countries Be? Picking off the Weak, Economist, Apr. 16. 2020.
 European Council, July 21, 2020, https://www.consilium.europa.eu/media/45109/210720-euco-final-conclusions-en.pdf
 European Council, Report on the comprehensive economic policy response to the COVID-19 pandemic, Apr. 9, 2020, https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive-economic-policy-response-to-the-covid-19-pandemic/.
 Proposal for a Council Regulation on the establishment of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak, COM/2020/139 final.
 Eurostat, Euro area unemployment at 7.4%, Apr. 30, 2020, https://ec.europa.eu/eurostat/documents/2995521/10294732/3-30042020-CP-EN.pdf/05df809c-7eb8-10c7-efcf-35325c84f56e.
 Proposal for a Council Regulation activating the emergency support under Council Regulation (EU) 2016/369 of 15 March 2016 and amending its provisions in respect of the COVID-19 outbreak, COM(2020) 175, Apr. 2, 2020.
 Coronavirus Response Investment Initiative, https://ec.europa.eu/regional_policy/en/newsroom/coronavirus-response/.
 Coronavirus Response Investment Initiative Plus: New actions to mobilise essential investments and resources, Apr. 2, 2020, https://ec.europa.eu/regional_policy/en/newsroom/news/2020/04/04-02-2020-coronavirus-response-investment-initiative-plus-new-actions-to-mobilise-essential-investments-and-resources.
 The Wizard, the Virus and a Pot of Gold: Viktor Orban and the Future of European Solidarity, European Stability Initiative Report, Apr. 18, 2020, https://www.esiweb.org/sites/default/files/reports/pdf/ESI%20-%20Orban%20the%20EU%20and%20the%20pot%20of%20gold%20-%2018%20April%202020.pdf.
 European Commission, EU Solidarity Fund: application guidelines for Covid-19 assistance, Press Release, Apr. 2, 2020, https://ec.europa.eu/regional_policy/en/newsroom/news/2020/04/04-02-2020-eu-solidarity-fund-application-guidelines-for-covid-19-assistance
 EU Solidarity Fund for COVID-19, https://ec.europa.eu/regional_policy/en/funding/solidarity-fund/covid-19.
 European Investment Bank (EIB) Coronavirus outbreak: EIB Group’s response, Press Release, Apr. 18, 2020, https://www.eib.org/en/about/initiatives/covid-19-response/index.htm
 See Louka, supra note 9, at 166-170. European Council, Report on the comprehensive economic policy response to the COVID-19 pandemic, Apr. 9, 2020, https://www.consilium.europa.eu/en/press/press-releases/2020/04/09/report-on-the-comprehensive-economic-policy-response-to-the-covid-19-pandemic/.
 See Louka, supra note 9, at 170.
 Government Handouts Threaten Europe’s Single Market: Europe’s Bail-Outs, Economist, May 28, 2020.
 Valentina Pop, EU Moves to Shrink Chinese, U.S. Influence in Its Economy, WSJ, June 17, 2020, https://www.wsj.com/articles/eu-moves-to-shrink-chinese-u-s-influence-in-its-economy-11592393124.
 S&P Global, The EU’s Recovery Plan is the Next Generation of Fiscal Solidarity, June 8, 2020, https://www.spglobal.com/ratings/en/research/articles/200608-economic-research-the-eu-s-recovery-plan-is-the-next-generation-of-fiscal-solidarity-11521777.