Brussels – European Union finance ministers are under pressure to deliver proposals for fiscal measures to counter the economic crisis triggered by the Covid-19 pandemic at talks on Tuesday over the bitterly divisive issue.
ESM or bonds?
On the table is a “safety net” worth half a trillion euros (540 billion dollars), according to Mario Centeno, the head of the Eurogroup of eurozone finance ministers. The senior official believes there is a broad consensus for a trio of measures, although long and difficult talks loom.
First up for consideration is a precautionary credit line from the European Stability Mechanism (ESM), the eurozone’s bailout fund, in case individual countries experience difficulties raising funds to deal with the fallout from the pandemic on financial markets.
Also under discussion are a guarantee fund from the European Investment Bank for business liquidity, as well as EU support to pay the wages of workers who would otherwise be laid off by struggling firms.
More controversial is the question of whether jointly issued EU bonds – commonly referred to as coronabonds – are necessary to overcome the major economic contraction anticipated across the bloc this year.
Some southern EU countries, notably Italy and Spain, are demanding this. France has proposed setting up a fund for bonds, which would be temporary, with a finite size and dedicated to the coronavirus crisis alone.
However, Germany, the Netherlands, Austria and Finland have rejected calls for coronabonds.
The issue threatens to torpedo any chance at an agreement on Tuesday, with southern states reluctant to approve the use of the ESM for fear that it would stigmatize them and come with tough conditions, as well as concerns that it would kick joint debt issuance further down the road.
The ESM is “absolutely inadequate” as a response to the crisis, Italian Prime Minister Giuseppe said in a press conference late on Monday. “ESM no, eurobonds certainly yes,” he added.
A final decision is yet to be made
European Commission Vice President Margrethe Vestager urged member states to throw taboos overboard, in an interview with the German media group Redaktionsnetzwerk Deutschland published on Tuesday.
“In the current situation we have to use all available instruments, without exception,” the EU’s top competition official said. “There can be no taboos. We need solutions.”
Meanwhile, the head of the Organisation for Economic Cooperation and Development (OECD), Angel Gurria, appeared to speak in favour of debt mutualization.
“Sharing fiscal risk is the next necessary step in European integration,” he told Germany’s Sueddeutsche Zeitung daily. “A financial instrument should not be a question of belief,” he added.
Many see the division over coronabonds, which echoes the debate during the eurocrisis, as a more fundamental schism between different European value systems.
If the finance ministers can reach consensus on Tuesday, they can present this to EU leaders for a final decision, after a first summit to tackle the issue ended in failure last month.