Helping in times of crisis: Europe’s emergency loans to neighboring countries

In this episode of the real economy, we focus on EU macro-financial assistance - emergency financial assistance given to neighboring countries in times of crisis to help stabilize their economies.

Over the past 30 years, 77 MFA operations worth €16 billion have helped 27 countries. The most recent example is the 1.2 billion euros brought to Ukraine in solidarity with the Ukrainian people.

Macro-financial assistance (MFA) comes mainly in the form of loans on very favorable terms and at low interest rates. To get the money, countries must have signed a financing program with the IMF, met conditions to respect human rights and fight corruption, and implemented democratic, economic and governance reforms.

The broader objective is to help ensure stability and prosperity beyond the EU.

North Macedonia

North Macedonia, an EU candidate country, received €160 million from MFA to help stabilize the country's economy following the shock caused by COVID-19.

The layoff of a large number of workers led to a sort of scissor effect: on the one hand, tax revenues were sluggish, and on the other hand, they led to a sharp increase in public spending.

In addition, foreign direct investment has dried up, reducing the country's trade balance.

The impact on young people

Since 2005, the youth unemployment rate in North Macedonia has been steadily falling, but in 2020 it has skyrocketed.

Marija Sepetovska, 23, found a job thanks to the EU Youth Guaranteeset up by the national agency for job seekers.

"Of course, it was a stressful time to start your career in the pandemic and especially for young people. In fact, I am becoming more and more confident, especially seeing that there are a lot of programs that support our country. ."

Marija admits that some of her friends weren't so lucky.

"It was very easy for me, but unfortunately that's not the situation of many other young Macedonians. Some of them find it much harder to find the great opportunity. So it's still not the best here," she adds. .

The first tranche of macro-financial assistance was sent in the form of emergency aid. For the second payment, North Macedonia had to fulfill a list of conditions. This included the creation of a youth unemployment unit.

Explaining what the unit does, its head Goran Petkovski told Real Economy: "They are involved, first in developing active labor market measures within the framework of the operational plan and how we can better target young people with these active market measures that we have. They are also responsible for coordinating the employment of youth counselors within the local employment office and, of course, monitoring and reporting on the Youth Guarantee."

The 160 million euros in emergency loans helped North Macedonia weather tough economic times, but Shenaj Hadzimustafa, associate professor of business and economics at South East European University, believes the benefits will last a long time.

"The money was needed for this period in order to finance part of the budgetary and balance of payments needs. But on the other hand, the reforms are the ones that remain and will have a positive impact on the country. So these reforms, I think it should have an impact not only in the short term but also in the medium and long term."

Now in its fourth decade, the EU recently deployed €1.2 billion in macro-financial assistance to support Ukraine. EU economics chief Paolo Gentiloni said Real economy such support is crucial.

"We have an interest in the stability of the region. Stability for migration. Stability for peace, etc. And finally, we have a huge interest as trading partners of these countries because the member states of the European Union are, on the whole, the main trading partners of all these countries." he said.

To find out more about how EU macro-financial assistance has helped North Macedonia, Real Economy's Naomi Lloyd spoke with the country's Prime Minister, Dimitar Kovačevski.

Naomi Lloyd, Euronews:

"What difference has EU macro-financial assistance made to the country?"

Dimitar Kovačevski, Prime Minister of North Macedonia:

"The macro-financial assistance from the EU has helped us a lot, not only from the point of view of pure financial assistance, but also It has helped to continue the reforms that we have started in the area of ​​public finance management and in other areas. But it also gave a clear signal to other international and financial institutions and donors with whom we cooperate, that we have a stable economic policy in times of crisis."

Naomi Lloyd, Euronews:

"How difficult were these reforms to implement?

Dimitar Kovačevski, Prime Minister of North Macedonia:

"The fight against crime and corruption has produced results because we have improved our position on the reports of Transparency International. We have now entered a country that has democratic conditions because in the past, in the past, there there were flaws in the democratic and procedural system in the country, and we are very, very happy because of that.

Naomi Lloyd, Euronews:

"How do you ensure that the reforms do not stop there, but that they will be fully implemented in the future?"

Dimitar Kovačevski, Prime Minister of North Macedonia:

"We have made sure that with the institutions of the European Union and the European Commission, we have regular coordination, so we have regular reports. We have also worked a lot on the establishment of internal mechanisms in the countries and in public institutions to ensure that these reforms are made."

Naomi Lloyd, Euronews:

"Now North Macedonia is a candidate for EU membership. The next step is the accession talks. Do you have any hope that they will start soon?"

Dimitar Kovacevsky. Prime Minister of North Macedonia:

"North Macedonia has a clear strategic goal to become a full member of the Euro-Atlantic Associations. Last year we celebrated the 30th anniversary of our independence, and that was accompanied by becoming the 30th member of the "NATO. We are already in the 17th year and still have not started negotiations. Unfortunately, last year there was another challenge which was imposed by the former Bulgarian government. With the two new governments we started a new dialogue, so with the Bulgarian Prime Minister we already had a meeting in Skopje in order to restore confidence.