Mário Centeno, the eurogroup president, has said that there is “broad support” among euro area finance ministers to harness the bloc’s bailout fund, the European Stability Mechanism, as a weapon to fight the economic turmoil unleashed by coronavirus.
Speaking after a two-hour videoconference with the bloc’s finance ministers, Mr Centeno said that the plan involved creating a “pandemic crisis support safeguard” at the ESM — the currency area’s €500bn sovereign bailout fund. He said that it would be based on the institution’s existing ability to grant precautionary credit lines.
He added that further work was still needed on the details but that he hoped for guidance on how to proceed from EU leaders when they hold a videoconference on Thursday. The instrument “will provide an additional line of defence for the euro and work as an insurance to protect us against this unfolding crisis”.
Countries including France, Italy and Spain have been urging member states to join forces in the fight against a deep slump in the region’s economy, warning that failure to show greater solidarity could prove disastrous for the single currency. Over the weekend Paolo Gentiloni, the EU’s economy commissioner, predicted that ministers would this week rally round new fiscal weaponry to fight the crisis.
But a group of European countries, led by the Netherlands and Austria, remain sceptical of the merits of collective fiscal action. Pressure for finance ministers to act jointly was alleviated by the European Central Bank’s decision last week to sweep into markets with a €750bn bond-buying package, reducing the financing costs of countries including Greece, Italy and France.
Wopke Hoekstra, the Dutch finance minister, said a small group of countries cautioned against prematurely deploying the ESM’s firepower and instead wanted to wait until a more severe phase of the crisis to use the bailout fund as a “last resort” instrument.
“We are driving through the mist and we don’t know what the next phase [of the crisis] looks like. It is good that the ESM is in our toolbox. [But] we think there is a clear logic to keep it in our arsenal and not fire it prematurely,” said Mr Hoekstra.
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The plan under consideration by finance ministers centres on harnessing the ESM’s existing ability to provide countries with so-called enhanced conditions credit lines, or ECCLs. These would be available to all countries, applying individually.
The size of the instrument could be in the range of 2 per cent of the gross domestic product of the country applying, said Klaus Regling, the ESM’s managing director. He added that there was a “broad consensus” around this level, and that it could rise further if it were a particularly serious case.
The credit lines “would be available for all member states of the euro area, but it is up to every member state to decide whether they want to apply for it or not,” said Mr Regling. He said that the ESM has €410bn of unused lending capacity, equivalent to around 3.4 per cent of euro area GDP.
A key question centres on the conditions that would be attached to any use of the ECCL — an instrument designed during the last crisis and not for the pan-European shock that is now taking place. Bruno Le Maire, the French finance minister, told the meeting that the conditions should not be demanding, because that could engender a negative market reaction, diplomats said.
“Features of this instrument would need to be consistent with the external, symmetric nature of the Covid-19 shock. This is also true for any attached conditionality,” Mr Centeno told reporters after the call. “While there is broad support among members for these features, more work is needed on details.”
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A number of member states including France have also been calling for the introduction of so-called coronabonds, which could be issued by an existing European institution or mechanism, including the ESM, to raise money to battle the crisis.
But diplomats involved in the discussion said the coronabonds were not discussed in any depth by ministers after Germany’s Olaf Scholz warned against polarising the debate with talk of debt mutualisation. “It was not a topic that got any broad traction,” said Mr Hoekstra.
There were no concrete proposals for the use of coronabonds heading into the meeting, with most work by officials focusing on the ECCL concept that now lies at the heart of the eurozone’s fiscal response. Mr Gentiloni said that coronabonds remained among “several tools on the table” and that discussion on the topic could continue.
