Eurogroup finance ministers have agreed an emergency rescue package aimed at responding to the coronavirus crisis but left unresolved questions on how to pay for a later economic recovery plan for the bloc.
The breakthrough on immediate economic measures supporting businesses, workers and sovereigns was achieved on Thursday night after the Dutch government backed away form prior demands that lending from the region’s bailout fund be made subject to tougher conditions.
Eurozone governments have been struggling to unlock a co-ordinated rescue package as they debate the degree of burden sharing needed to underpin economic activity across the bloc. While ministers agreed on a €500bn package of palliative economic measures in their meeting, they did nothing to lay to rest the festering dispute over how to pay for the longer-term economic reconstruction effort that will follow the crisis.
Finance ministers clapped over their teleconference at the final accord, stuck just before 10pm Brussels time, which will now be put to EU leaders next week. Mário Centeno, the eurogroup president, told reporters that the “bold and ambitious proposals” would have been unthinkable just a few weeks ago. “We can all remember the response the financial crisis of the last decade, when Europe did too little too late. This time around is different,” he said.
Olaf Scholz, the German finance minister, said the deal marked “a great day for European solidarity and strength”.
The core elements of the package are revised pandemic credit lines from the European Stability Mechanism that will be available within two weeks; a boost to the lending capacity of the European Investment Bank; and a new €100bn unemployment insurance scheme proposed by the European Commission.
Ministers also agreed on setting up a “temporary, targeted” recovery fund to help trigger a post-lockdown economic rebound, but questions on the size and sources of funding for the tool are unresolved and subject to deeper disagreements between northern and southern capitals.
Negotiations among finance ministers broke up after a 14-hour marathon session earlier this week where the Netherlands and Italy clashed over the terms of the emergency lending by the ESM, the region’s €410bn bailout fund for embattled governments.
Wopke Hoekstra, the Netherlands finance minister, had demanded that countries that need the cash for emergency spending would have to make promises to reform their economies after the crisis phase was over to ensure they can repay the funds. Italy has resisted such signing-up to conditionality, with the issue becoming a lightning rod for the country’s Eurosceptic forces.
To break the impasse on Thursday night, ministers decided that countries using the credit line can spend up to 2 per cent of their gross domestic product on “direct and indirect” costs relating to the health crisis without any conditions attached. The Netherlands welcomed the final deal and insisted that if a government needed to use ESM loans for spending not related to the pandemic, tougher conditions would still apply.
“There was a strong desire by the Netherlands to help out on healthcare [spending] as it is related to coronavirus,” said Mr Hoekstra. “But for every euro that is spent on the economy, the normal rules apply; for example, if you have a shop that has shut down because of the virus”.
Roberto Gualtieri, Italy’s finance minister, said the agreement meant “conditionality was off the table on the use of ESM financing”. Under the terms, Italy could in theory access around €38bn in loans from for emergency healthcare related spending.
Thursday’s talks were meant to start at 5pm but were repeatedly delayed as a subset of the eurogroup, including Germany, France, Italy and the Netherlands, worked at brokering a compromise that could satisfy all sides.
The other key elements of the package include a decision by the EIB to create a pan-European guarantee fund of €25bn, which in turn would support €200bn of financing for small and medium-sized companies. Ministers also endorsed a European Commission plan to create temporary loans to fund employment protection schemes in member states, known as Sure.
Finance ministers from Germany and France helped broker the compromise prepared by Mr Centeno. Officials said Angela Merkel, the German chancellor, and President Emmanuel Macron of France had also engaged in furious telephone diplomacy with Rome and The Hague in the last 24 hours.
Yet Berlin and Paris remain deeply divided over the vexed question of greater mutual debt issuance as part of an eventual rescue plan know as the EU Recovery Fund.
The text of Thursday’s deal says the fund will be “commensurate with the extraordinary costs of the current crisis and help spread them over time through appropriate financing”. Officials said the wording papers over profound divisions on how large the fund needs to be, how urgently it needs to be set up, and how the costs will be shared between fiscally stronger and weaker capitals.
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While southern European capitals led by Rome and Madrid have been pushing for jointly issued “coronabonds” Mr Centeno acknowledged the idea has split eurozone capitals. “Some member states expressed the view that this should be done by common debt instruments. Other member states said alternative ways should be found”, he told reporters.
The text instead refers to governments working on “innovative financial instruments, consistent with EU Treaties” to fund the recovery. Mr Gualtieri said the reference meant that coronabonds were “still on the table. Now it’s up to the leaders to take the right decisions”, he said.
Mr Hoeskstra, however, insisted that his government’s resolve was unmoved. “I’m not OK with [coronabonds]; I never was OK with it and I never will be. It is unfair to the Dutch taxpayer. It will increase the risks to the union as a whole; it is unwise and it should be avoided.”
Additional reporting by Guy Chazan in Berlin and Victor Mallet in Paris
