Finance ministers strike deal to combat
coronavirus recession
Eurogroup backs emergency credit lines but not corona
bonds.
By BJARKE
SMITH-MEYER 4/9/20, 10:51 PM CET Updated 4/10/20, 4:19 AM CET
Brussels’
art of the fudge is alive and well — corona bonds aren’t.
EU finance
ministers papered over their discord on the issue of joint debt, with a vaguely
worded statement that nonetheless unlocked a €540 billion package of measures
aiming at stopping the coronavirus from ravaging the bloc’s economy.
They
reached the agreement on Thursday evening in an online Eurogroup meeting,
capping three days of formal and informal talks — including a 16-hour marathon
of negotiations that ended in stalemate Wednesday morning.
Thursday’s
deal comes as EU growth is expected to tumble by 7 to 8 percentage points this
year after governments closed their borders and shut their economies down to contain
the pandemic — wiping around €1 trillion from the bloc’s expected economic
output this year.
To date,
there are approximately 1.6 million recorded cases across the world of
COVID-19, with just under 100,000 people dead. Italy has the highest number of
deaths, totaling over 18,000. Spain has the second-highest count of fatalities
at over 15,000.
The
Eurogroup’s new safeguards aim to mitigate the economic fallout from the
pandemic by protecting workers, keeping companies afloat and protecting state
coffers from ruin.
Rome and
Madrid had hoped the severity of the health and economic crisis would open the
door to pooling EU debt, which could finance the bloc’s recovery and keep
borrowing costs down. Both countries’ prime ministers have warned that the
European project is at stake without this level of solidarity.
But corona
bonds disappeared in the statement’s linguistic ambiguity. The text merely
referred to a recovery fund that could provide money to countries through the
EU budget to help kick-start the bloc’s economy.
The fund
could use “innovative financial instruments” to raise money, the statement said,
with no mention of its potential size or when it would come.
That was
enough for Italy’s finance minister, who quickly grabbed his phone to tweet his
understanding of the text after the Eurogroup meeting between ministers ended
at around 10 p.m.
“European
bonds are on the table,” Roberto Gualtieri wrote on Twitter. “We are delivering
an ambitious proposal to the European Council. We will fight to make it
happen.”
National
leaders will take the debate further when they have their own videoconference,
earmarked for next week, to sign off on the deal that took ministers three days
to iron out.
“This
guidance is going to be crucial,” Eurogroup President Mário Centeno, who
chaired the negotiations, told reporters after the online gathering. “There are
different options to set up this fund.”
But the
Dutch finance minister left little room for further interpretation.
“It is actually very simple,” Wopke Hoekstra told
reporters. “Eurobonds is a thing I wasn’t OK with, I am not OK with and I will
never be OK with.”
He continued: “It is my deeply held conviction that it
is not only unfair to the Dutch taxpayer but is also, in the end, something
that will increase rather than decrease risks for the Union as a whole.”
Hoekstra isn’t alone. He has the backing of Germany
and many Northern European countries, such as Finland. They fear that pooling
EU debt would leave their taxpayers holding the bill for any government that
goes bankrupt.
Near enough
is good enough
Thursday’s
fudge was nonetheless enough to tie a final package together.
The deal
allows the European Investment Bank to set up a fund of €200 billion in loans
for cash-strapped companies across the bloc. The European Commission’s
temporary €100 billion jobless reinsurance plan also got the green light and
aims to protect workers and help with some health-related issues.
Brussels’
legislative machine will first have to find a compromise text between EU
lawmakers and governments before it can be rolled out.
Finally,
any eurozone country will also be able to draw on a credit line worth 2 percent
of its economic output from the eurozone’s bailout arm — as long as the money
is used for health care related costs.
The €240
billion in credit lines will only be available to handle the crisis and should
be accessible within two weeks. No other conditions apply.
Eurozone
governments should nonetheless remain committed to keeping their finances in
check after the coronavirus crisis is over, the Eurogroup statement said.
Market
analysts welcomed the Eurogroup deal, though some economists warned the angry
rhetoric surrounding corona bonds could stain the overall package.
“The loud dispute over the deal in the last two weeks
threatens to overshadow the substance, making it more difficult for national
leaders to present the result at home as impressive solidarity in action to
shape their domestic public debate,” said Berenberg’s chief economist, Holger
Schmieding.
This
article has been updated.
Authors:
Bjarke Smith-Meyer
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