Spanish Foreign Minister Arancha González has warned fellow EU members that forcing countries to take on more debt to tackle the impact of the coronavirus will only deepen the economic damage.
In an interview with POLITICO ahead of Thursday’s videoconference of EU leaders, she also urged governments not to get caught up in old battles as they try to agree an economic recovery plan.
Earlier this week, Spain put forward a plan for an Economic Recovery Fund financed by perpetual EU debt to give grants — rather than loans — to help countries bounce back from the economic shock. While Madrid did not put a figure on the size of the proposed fund, it said most experts estimate the negative impact of the crisis on the EU at between €1 trillion and €1.5 trillion.
Other EU countries and the European Commission have floated different plans, which involve various forms of loans rather than grants. Several countries, including Germany, are also staunchly opposed to issuing joint EU debt instruments, sometimes known as corona bonds or eurobonds.
González, whose country is among those hardest-hit by the coronavirus, argued that it is in the interests of all EU members that the bloc as a whole stages a strong recovery from the crisis.
“What we are discussing today is not moral hazard, is not prior good or bad management of the economy” — Spanish Foreign Minister Arancha González
“The recovery fund should not be about increasing levels of public debt. That would only exacerbate the impact of the crisis,” González said in the telephone interview.
“That is why we are saying that the fund should consider transfers, grants to members, which we think make more sense in the specific circumstances of 2020.”
González warned against seeing the current upheaval as a re-run of the EU’s sovereign debt crisis of a decade ago. The wounds of that battle have already been reopened by some of the debate this time around, with southern European countries complaining of a lack of solidarity and northern members stressing an aversion to taking on responsibility for others’ debts.
“What we are discussing today is not moral hazard, is not prior good or bad management of the economy,” González said. “What we are discussing today is the systemic impact of a pandemic which is a global crisis on all our economies, which as a result increases our national public debt levels.”
González argued that Spain had earned the right to be trusted by its EU partners when it comes to economic policy.
“It is not as if Spain has not been doing its homework, it is not as if Spain has not been responsible in the past. We’ve been reducing our public debt, we’ve been reducing our deficit, we’ve been reforming our retirement age,” she said. “So it’s not about asking anybody to shoulder our debt, it’s about making a common investment into keeping the European market functioning.”
However, González said there was one useful parallel with the euro crisis. She noted a 2012 declaration by then European Central Bank President Mario Draghi to do “whatever it takes” to preserve the euro had huge symbolic value and González argued a strong recovery fund could have the same effect.
“What changed the game … is the moment Europe gave a signal that it was creating a shield that covered all its members. That’s what happened when Draghi said, ‘Whatever it takes.’ What’s needed today is a signal here again that we are going to create a shield that will help all EU members,” González said.
Any recovery fund would come on top of a €500 million package to combat the crisis agreed by EU finance ministers earlier this month. Many EU leaders have spoken in favor of a recovery fund but its size has yet to be agreed and there are deep divisions over how it should be paid for and how it should work.
González said Spain was open to taking on board concerns of other EU members, for example in setting limits on how money from the fund could be spent and how countries report on their spending.
She said the size of the grants from the fund should not be determined by “pre-existing criteria” such as contributions to the EU budget, but on measurements of the impact of the coronavirus on each country, such as the percentage of people affected, the increase in unemployment levels or a drop in GDP.
But she added Spain is open to discussion on these indicators. “We have not set them in stone,” she said.
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