France, Italy and Spain and six other euro area governments have called for the issuance of joint European debt to finance the fight against coronavirus, setting up a clash with capitals including Berlin that believe the move is premature.
In a joint letter to European Council president Charles Michel, leaders from the nine countries said the EU needed “to work on a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all member states”.
They argue that the move would ensure “stable long-term financing for the policies required to counter the damages caused by this pandemic”.
The intervention came a day before a planned videoconference of EU leaders that is supposed to galvanise the next stages of Europe’s crisis response.
But the concerted push for so-called coronabonds threatens to deepen the rift between capitals over how far and how fast the EU should harness common fiscal solutions to tackle the economic destruction unleashed by Covid-19.
Eurozone finance ministers were on Tuesday unable to agree a firm plan for the bloc’s bailout fund, the European Stability Mechanism, to issue credit lines to help tackle the crisis, with many details still to be worked out.
Germany has raised concerns that the bloc could exhaust its possibilities for centralised fiscal action too early in the crisis, before the true extent of the economic needs becomes clear. The Dutch government has even greater reservations, stressing that the ESM should be a last resort, and firmly ruling out coronabonds.
The idea of joint coronabonds is particularly controversial because it strays into the area of mutualised debt issuance by eurozone governments, resurrecting the concept of “eurobonds” that has been repeatedly rejected by the Netherlands, Germany and other northern members of the currency bloc as fundamentally incompatible with their vision of monetary union.
Peter Altmaier, the German economy minister, said the discussion of eurobonds was a “phantom debate”. “I urge caution when supposedly new, ingenious concepts are presented which often enough are just long discarded ideas coming back from the dead,” he told Handelsblatt.
Asked about joint bonds, Dennis Kolberg, a German finance ministry spokesman, said Berlin had “already agreed a comprehensive package of measures and there is an ambitious, targeted programme on the European level . . . We have with the ESM a powerful, functioning and tried and tested tool which can provide support forcefully and quickly.”
But French president Emmanuel Macron, Italian prime minister Giuseppe Conte, Spanish prime minister Pedro Sánchez and others have argued that the fight against Covid-19 is a special case, constituting an external, symmetric shock that affects all countries.
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The same argument has been made by European Central Bank president Christine Lagarde, who urged finance ministers during Tuesday’s videoconference to go further than the ESM proposal and embrace the use of coronabonds, said people familiar with the discussion.
The signatories of the letter — who also include the leaders of Portugal, Ireland, Greece, Slovenia, Luxembourg and Belgium — said the case for a common debt instrument “is strong”.
“We are collectively accountable for an effective and united European response,” they wrote in the letter, dated March 25.
“This common debt instrument should have sufficient size and long maturity to be fully efficient and avoid roll-over risks now as in the future,” they wrote. “The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system.”
The letter also says EU countries “need to make sure that essential value chains can fully function within the EU borders and that no strategic assets fall prey of hostile takeovers during this phase of economic difficulties”.
It calls on the European Commission to provide “agreed guidelines, a common base for the collection and sharing of medical and epidemiological information, and a strategy to deal in the near future with the staggered evolution of the epidemic”.
Additional reporting by Martin Arnold in Frankfurt
Source: Economy - ft.com
