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.