Brussels – Eurozone finance ministers fell short of striking a deal on further measures to bolster the currency area despite the rapid deterioration of the economic landscape due to the coronavirus pandemic.
General support for a credit line
There is “broad support” for allowing a credit line from the eurozone’s bailout fund, the European Stability Mechanism, eurogroup president Mario Centeno said after the talks.
But the “discussion has just only started and more work is needed to get to the finish line,” he added.
This credit line could be used to help cash-strapped eurozone states struggling to cover additional healthcare and social security costs as well as liquidity measures.
The sources of funds could be worth roughly 2 per cent of national gross domestic product (GDP), according to Centeno.
The key question here would be what conditions are attached – for example, whether a state has strictly enforced social distancing measures for its citizens.
EU officials are keen to ensure that member states’ use of any measures doesn’t lead to stigmatization of one country – such as Italy – in particular.
Help for unemployed and struggling businesses
Many EU states have announced extra benefits arrangement for the rapidly rising number of unemployed people or liquidity provision for struggling companies.
In the last week, the total amount of fiscal measures taken by the 19 eurozone governments has doubled and is now estimated to constitute 2 per cent GDP, Centeno said.
The European Union has already taken several measures to protect the bloc’s economy, with officials warning that the Covid-19 outbreak could trigger an economic contraction comparable to 2009, the worst year of Europe’s financial crisis.
A graphic shows the spread of the Coronavirus
Measures already taken include relaxing the bloc’s stringent fiscal rules, adapting state aid guidelines, and triggering an emergency 750-billion-euro (814-billion-dollar) European Central Bank bond-buying scheme.
The eurogroup president is to report back to a summit of EU leaders on Thursday, to take place as a videoconference.
Introducing the eurobonds
A much more ambitious policy measure being floated is the introduction of so-called corona bonds – collectively issued eurozone government debt. Italy and France are among those pushing most vocally for the bonds.
Analysts warn that Italy, which has so far born the brunt of Europe’s coronavirus outbreak, could see its mountain of public debt soar to 160 per cent of GDP this year – threatening the entire eurozone.
However, the creation of such eurobonds has been anathema to risk-averse countries such as Germany and the Netherlands, who oppose the pooling of sovereign debt.
“We have several tools on table,” EU economy commissioner Paolo Gentiloni said Tuesday, including the bonds, but stressed the need to “build consensus” among member states.
Given the deeply entrenched divisions among member states, issuing the bonds is not a likely prospect, a eurogroup official told dpa ahead of the talks.