Financial ministers from EU’s 19 eurozone states met late into Wednesday morning via video-conference, but failed to thrash out an agreement on a stimulus package to help EU states withstand the economic ravages of the coronavirus pandemic.
Discussions have now been postponed until Thursday 9 April. The main bone of contention is whether member states should pool their debt.
Diplomatic sources told Reuters news agency that: “The Italians want a reference to debt mutualisation as a possible recovery instrument to be analysed more in the future. The Dutch say ‘no’.”
German finance minister Olaf Scholz said this morning that the finance ministers — also known as the Eurogroup— had “almost agreed but not quite.” Scholz said there were three proposals under debate, with a combined volume of €500bn ($542bn, £440bn).
Ahead of the meeting, it was clear that the Eurogroup would discuss three main measures including the European Stability Mechanism, a pot originally set up during the euro crisis, but loans come with stringent conditions, and are subject to oversight by the European Central Bank, the European Commission, and the International Monetary Fund.
Scholz reiterated his recommendation that the tough conditions to access ESM funds needed to be relaxed, so that that if a country says it wants to use these funds “there's not then a load of commissioners who go there and first spend weeks discussing with them how they should change their policies in the coming years.”
The Commission is also putting forward €100bn into a short-time work initiative called SURE, modelled on Germany’s “Kurzarbeit” scheme, where the government pays companies 60% or more of an employee’s salary whilst they are stood down or have their hours reduced.
The European Investment Bank proposed a pan-European fund of to guarantee up to €200bn in loans to small and medium-sized companies.
However, the debate about debt mutualisation, which has been wrangled over since the financial crisis, is now centre stage again.
Nine countries, led by Spain and Italy, have been very vocal about how they feel debt mutualisation would strengthen EU solidarity. They say they should not have to borrow and be subject to rigorous checks and repayment schedules – or forced to later enact austerity measures – as the coronavirus pandemic is a “symmetrical shock” and called for “corona bonds.”
Eurobonds were much debated during the euro crisis a decade ago but ultimately rejected by Germany and a few other countries, who were loath to assume debt liability for countries like Italy and Greece, whose economies needed an overhaul.
Corona bonds would be more or less the same idea: they would allow heavily indebted countries to borrow money at better terms as countries with robust economies, like Germany, would be co-guarantors, making the weaker ones a safer bet.
Spanish prime minister Pedro Sanchez wrote in the Guardian that Europe’s future was at stake and that “it is time to act with solidarity in creating a new debt mutualisation mechanism.”
Scholz stands with chancellor Angela Merkel in opposition to corona bonds.
Some German finance experts, including the president of the German Institute for Economic Research (DIW) are pro-debt mutualisation. Marcel Fratzscher told the Rheinischer Post (link in German) newspaper that the German economy “is an integral part of a European economy that can only be as strong as its weakest link – and these are Italy and Spain at the moment.”
“Sharing financial risks is the next necessary step in European integration," OECD secretary general Angel Gurria told Germany’s Süddeutsche Zeitung (link in German), noting that he was “absolutely in favour of the euro states issuing issue community bonds to combat the economic consequences of the corona crisis.”