EU Finance Chiefs Go Into Another Clash Over Virus Response
EU Finance Chiefs Head to Another Showdown Over Virus Response
(Bloomberg) --
European finance ministers headed into another confrontation on Thursday, as they seek to iron out persisting disagreements over how to cushion the blow from a looming recession.
The start of a scheduled video conference was delayed several times into the Brussels evening, amid frantic negotiations aimed at reaching a deal on a 540 billion-euro ($590 billion) package of measures to bolster economic recovery.
A potential failure to strike an agreement, following a 16-hour-long call that descended into acrimony earlier this week, would do little to restore confidence that the region can weather the storm unscathed.
“There are no first class passengers: We either sink or swim together,” Eurogroup President Mario Centeno tweeted before the videconference meeting. “The good news is that we are very close to an agreement.”
The proposed package includes a joint employment insurance fund worth 100 billion euros, a European Investment Bank instrument intended to supply 200 billion euros of liquidity to companies, as well as credit lines of up to 240 billion euros from the euro area’s bailout fund to backstop states as they go on a spending spree to help economies back on their feet. The quarrel is centered on the conditions attached to these credit lines, as well as on the prospect of setting up a new fund that will issue debt jointly backed by all member states.
Austria, Germany and the Netherlands oppose any hint of debt mutualization. Austrian Finance Minister Gernot Bluemel said the wording in the draft joint statement of ministers that proposes the creation of a fund that will use “innovative financial instruments” isn’t acceptable. “This language opens the door to a mutualization of debt, so we’re against it,” Bluemel told reporters ahead of the call.
Bailout Fund
The second contentious point is lending from the European Stability Mechanism -- the euro area’s bailout fund that normally lends to countries in distress under tough conditions of belt tightening. While Northern countries, led by the Netherlands, acknowledge the recession caused by the pandemic isn’t related to fiscal profligacy, they oppose lending from the ESM without any conditions, prompting a fierce backlash from Italy.
“ESM is not an appropriate instrument for this crisis in dimensions and nature,” Italian Finance Minister Roberto Gualtieri said before Thursday’s call. Gualtieri signaled that Italy could nonetheless accept ESM credit lines, if they aren’t tied to conditions and are part of a package that includes joint debt issuance. “Things would be different in the case of a sufficiently ambitious package, which would include the French-Italian proposal for a recovery fund financed by common issuance.”
The debate over debt mutualization, risk and burden sharing, echoes the divisions that almost tore the European Union apart during the sovereign debt crisis almost a decade ago. The risks to the region’s economies are of similar magnitude, and -- just as it happened in 2012 -- it’s the European Central Bank intervention that is keeping conditions in financial markets in check while governments spar.
EU economy chief Paolo Gentiloni told ministers during Tuesday’s call that the bloc’s output will contract by up to 10% this year, more than any other time in living memory, according to two officials familiar with the matter.
“We’re in complete agreement that we urgently need solidarity in Europe’s, as some say, in Europe’s most difficult hour, if not the most difficult -- and that Germany is ready and obligated for this solidarity,” German Chancellor Angela Merkel said before Thursday’s call. “You know that I don’t believe that we should have joint liability given the state of the political union within the EU.”
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