EU’s Coronavirus Emergency Deal
On April 09, Eurogroup finance ministers 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. 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. The emergency rescue package promises to make available more than half a trillion euros to cushion the impact of the coronavirus pandemic across Europe.
After weeks of wrangling, EU member states buried their differences and agreed a 500-billion-euro ($550 billion) emergency plan for a European economy knocked to its knees by the coronavirus outbreak. Here is what was decided at the crunch meeting:
Go it alone
First, the member state finance ministers welcomed a raft of national, go-it-alone spending plans that have proliferated across the continent, amounting to a total of about three percent of the EU´s total GDP, or nearly 600 billion euros.
Totally uncoordinated, these plans underline Europe´s deeply ingrained inequality, with a clear advantage for to rich countries like Germany and the Netherlands that have the means to spend big.
Heavily-indebted member states Spain and Italy, caught on the virus frontline, do not have these means and they risk spooking the markets if their crisis spending becomes to large.
The challenge for ministers was to come up with a plan to better share the burden and keep the markets at bay.
The bailout fund
The heart of the plan, pushed by Germany, is the use of the European Stability Mechanism, the eurozone bailout fund created in 2012 during the debt crisis to help states facing financing problems on the markets.
The ESM has a total strike force of about 420 billion euros but, in exchange for help, governments in need must implement reforms and endure the scrutiny of auditors sent to national capitals by the EU.
Italy and Spain long resisted this avenue as long as it came with these conditions attached — conditions that hardline Netherlands insisted must remain.
In the end, ministers accepted to open limited credit lines to any of the EU´s 27 member states that ask for them, but only as long it is spent on costs “directly and indirectly” connected to COVID-19.
Italy and Spain, with the backing of France and a few others, had called for the creation of a financial “instrument” through a common loan by all 19 countries that use the single currency.
These instruments — dubbed “coronabonds” by Rome — would pool borrowing by eurozone countries to spend on the economic recovery after the coronavirus outbreak recedes.
Despite passionate pleas, Berlin and the north did not budge and the idea of a recovery fund financed by pooled borrowing was kicked down the road.
Though the final statement refers to “innovative” sources of financing for an eventual recovery fund, Dutch Finance Minister Wopke Hoekstra told reporters “we should not fool ourselves”.
“There is a majority against eurobonds, majority against debt mutualisation, there is a deliberately vague text,” he said.
Member states whose debt is considered the safest, led by Germany, have always refused to mutualise their risk for the benefit of countries considered less financially virtuous.
European Investment Bank
Germany and the Netherlands have touted other acts of solidarity, including a decision by the EU´s executive to suspend deficit and debt rules during the course of the crisis, as well as lift bans on state aid.
Ministers thanked the European Investment Bank, run by the 27 member states, for proposing a pan-European guarantee fund. It would be supported by guarantees from the member states, which would make it possible to mobilise up to an additional 200 billion euros, mainly targeted at European small business.
Ministers accepted a European Commission proposal for a bloc-wide guarantee that could raise 100 billion euros to aid certain types of national unemployment schemes as millions of jobs are hit by the coronavirus outbreak.
In the complex scheme, called SURE, the bloc´s 27 national governments would give a temporary budget to Brussels so the EU executive can raise money on the markets to lend to member states struggling to help employees suddenly left without work.
The commission has also suggested using the EU´s long-term budget for 2021 to 2027, currently under negotiation, which could be beefed up to act as a “Marshall Plan” to deal with the crisis.