The corona crisis is of a singular character, in particular in terms of its economic and societal implications. The containment measures taken by governments across Europe encounter a significant degree of public acceptance, but have resulted in a standstill of large parts of the economy. Precaution seems to be the essential driver of the current containment strategy and economic emergency measures, and will hopefully enable societies to cope with the exacerbation of the crisis in the days and weeks ahead.

Precaution as a principle is not only guiding policy-makers from a political perspective, but has also its legal underpinnings. In times of uncertainty, such as the current corona crisis, precaution is an essential legal imperative. On the one hand, the precautionary principle is one of the underlying legal concepts for decision-making by those who govern and bear the responsibility to prevent collapse of healthcare systems and – necessarily linked to such a potential scenario – the loss of a significant number of lives (as it happens in certain regions of Italy, for example). On the other hand, for economic crisis management confronted with challenges caused by an exogenous shock such as the coronavirus, one may draw some conclusions from an analogy to the precautionary principle as well-known from legal scholarship in risk regulation. In this regard, the article argues that it has been first and foremost the European Central Bank (ECB) that has proven by precautionary action to be capable of grasping the massive scale of the corona crisis.

The role of the precautionary principle for risk management

The precautionary principle is a well-known concept in areas of risk regulation, primarily concerning human or animal health or environmental protection. The European Commission brought forward an approach to the precautionary principle quite long ago in 2000. According to that, the precautionary principle is used to resolve the dilemma that policy-makers face when balancing the freedom and rights of individuals or businesses and the necessity to mitigate the risk of adverse effects to human, animal, plant life or health. Risk regulation is inherently linked to uncertainty that policy-makers must deal with, e.g. in the case of the coronavirus and COVID-19, in terms of the infectiousness, the case fatality rate or prevalence. Yet, policy-makers have the responsibility to determine a level of risk and uncertainty appropriate to bear for a society. For this reason, the precautionary principle allows governments to act temporarily, even “without having to wait until the reality and seriousness of (…) risks become fully apparent”, as the General Court phrased it (case T-13/99 Pfizer Animal Health v Council, para 139). Generally, the CJEU has produced a substantial amount of jurisprudence on cases dealing with risk regulation. It follows from the CJEU´s jurisprudence that the precautionary principle requires “competent authorities to take appropriate measures to prevent specific potential risks (…) by giving precedence to the requirements related to the protection of those interests over economic interests” (joined cases T-74/00, T-76/00, T-83/00, T-84/00, T-85/00, T-132/00, T-137/00 and T-141/00 Artegodan and others v Commission, para 184). So, their risk management does not necessarily involve the evaluation of the probability of risk events, but rather their mere possibility.

From a legal perspective, it seems however troubling to some extent to allow intervention that is supposed to take effect before specific risks emerge. As such, it would be a mere hypothetical approach to risk (see case T-13/99 Pfizer Animal Health v Council, para 143). In order resolve this issue, proper risk regulation requires scientific risk assessments to enable the competent public authorities to ascertain whether matters have gone beyond the level of risk that it deems acceptable for a society. So, as the corona crisis has demonstrated so far, the precautionary principle reconciles scientific analyses and political discretion. Current containment measures represent political decisions which are underpinned to a large extent by virological research and studies providing for technical input into the administrative or political decision-making process. Scientific risk assessments inform the exercise of political discretion, but do not dictate any outcomes. An example of where such a dynamic had hard times to catch on is the UK. Its government preferred a ‘herd immunity’-strategy for a relatively long period of time, though this approach was not backed by virologists and ultimately abandoned by the UK government.

The great influence of (scientific) risk assessments on (political) risk management can be an increasing challenge for virologists in the context of the corona crisis. The public eye may perceive science as the de facto ultimate decision-maker though scientists lack of any democratic legitimacy. Nonetheless, continuously updated scientific research and evaluations with respect to crisis development urge policy-makers to adjust their policy measures and require re-evaluations of whether containment measures are (still) legal. Given that many European countries introduced containment measures in mid-March 2020, their legality needs to be assessed on the basis of the scientific status quo of that point of time (see for example, the assessment of containment measures in Italy from a human rights perspective by Allessandra Spadaro). However, with having a crisis situation that is uncertain whether and under which circumstances it may worsen or improve, containment measures in both scenarios need to be backed by scientifically-backed concerns.

Precautionary action as a leitmotiv for regulatory and fiscal measures

In analogy to the precautionary principle as applied in the corona health crisis, one may also identify a special mode of ‘precautionism’ where the corona crisis requires ‘risk management’ to stabilise the economy. The ECB, for example, emphasised that it would “not [to] tolerate any risks to the smooth transmission of its monetary policy”. The ‘Pandemic Emergency Purchase Programme’ (‘PEPP’) with a volume of €750bn (until end of 2020) is the ‘bazooka’ that responds to and prepares for “exceptional, fast-evolving and uncertain circumstances” (recital 3) of the corona crisis. The ECB has recognised that “economic activity across the euro area (…) will inevitably suffer a considerable contraction” (recital 4). It has thus provided the implementation of the PEPP with a high degree of flexibility, in particular in terms of allocating when and where particular asset purchases are necessary, with a view to preserve price stability, as well as with a view to ensuring the supply of liquidity for small or medium businesses and corporations and to maintaining the payroll of workers (see Art. 5 (2) in conj. with recital 4 of the PEPP). Interestingly, the ECB´s Governing Council has delegated the “power to set the appropriate pace and composition of PEPP monthly purchases” (Art. 5 (3) of the PEPP) to the Executive Board. This will also ensure flexible implementation of the PEPP.

Besides, the ECB has, in its role as banking supervisor, allowed supervised credit institutions capital reliefs in order to increase their lending capacities. This alone would release an amount of approximately €120bn (with potential finance capacity up to €1.8 trillion of lending). In early corona times, ‘precautionism’ prevails over ‘prudentialism’. In other words, ‘precautionary’ banking supervision is anti-cyclical and needs to support (macro-)economic stabilisation which aims at the elimination of the risk of adverse economic effects or at least the reduction of that risk to the minimum acceptable level. Efforts of prudential banking supervision to ensure proper handling of banking-specific risks, e.g. by certain absorbance mechanisms for risk materialisation scenarios, are suspended temporarily. In the sense of ‘precautionary’ banking supervision, the ECB further demanded, as announced on 20 March 2020, credit institutions to mobilise additional €30bn, by prioritising funding to the real economy over dividend distribution and share buy-backs until October 2020. Despite the informality of that recommendation, it is expected that credit institutions will comply since any cases of ‘non-compliance’ are to be explained to supervisors immediately within the supervisory dialogue.

All these measures are taken without having a profound picture, yet, of how severe the “mother of all recessions” will be. The rationale as well as promise of the ECB’s recent activities is to secure the near-term supply of liquidity. In this context, one may also refer to the article by Mario Draghi in the Financial Times in which he urged “to reach immediately into every crack of the economy”, to prevent household and corporate insolvencies as a number one priority.

With a view to the issuance of financial instruments, be it under the regime of the European Stability Mechanism (ESM), by a novel Covid credit line or by so-called corona bonds (in this respect, see the piece by Julian Pröbstl), a distinction should be drawn between precautionary measures and economic recovery measures. Art. 14 of the ESM Treaty expressly provides a legal basis to grant ‘precautionary financial assistance’ which should be used in such a manner. Both credit lines envisaged have only a temporary character with an initial availability period of one year (and the possibility of renewal up to an additional one-year period). In light of potential recurrences of the virus spread, a temporary and quick recourse to ESM precautionary financial assistance, e.g. Enhanced Conditionality Credit Lines (ECCL), may ‘bridge’ an overall two-year period. This sounds reasonable in terms of a time frame for comprehensive precautionary action. However, the current volume of ESM assistance is limited to ‘only’ €410bn. Will it be enough for precautionary purposes? Here, the discussion of further financing options, e.g. a Covid credit line or corona bonds, becomes relevant. They may be complementary in terms of precautionary action of financial assistance, but also involve a longer-term perspective in terms of supporting economic recovery as soon as the picture of economic damages caused by the corona crisis becomes clearer.

Conclusion

The corona crisis is at its outset a public health crisis that requires precautionary responses insofar as it is to prevent an excessive spread of the virus that would overburden healthcare capacities. Containment strategies as a form of risk management by public authorities follow to a large extent virologist, i.e. scientific risk assessments, but are, at the same time, ‘only’ based on mere concerns of potential adverse effects or harm – below the threshold of specific or abstract threats. Such dynamics well-known in administrative risk regulation however likewise apply to economic, monetary or financial crisis management. Precautionary action to ensure economic stability includes the elimination of risks (or at least their reduction to an acceptable level) of household insolvencies, corporate insolvencies, banking failures and/or ultimately a recurring sovereign debt crisis. It is necessary to respond to the challenges ahead decisively and at an early stage, even if the further development of the corona crisis may still appear uncertain or its dimensions unimaginable as of today.



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