In the end, it took almost 17 hours of video-conferencing and three days of negotiations for Finance Ministers to unlock an economic coronavirus support package.
After three days of formal, informal and very public disagreement between EU Finance Ministers on how best to support Europe’s economy, Ministers finally reached a compromise just after 10pm Brussels time yesterday evening. Tuesday’s meeting had initially broken down over Italy (and several other countries, including Ireland) calling for the issuance of shared coronabonds to finance the recovery and Dutch insistence on tying access to the eurozone’s ESM bailout fund to strict conditions.
With the guidance of Eurogroup President Mário Centeno and German and French Finance Ministers Olaf Scholz and Bruno Le Maire, a final compromise between the Italians and Dutch was reached. Under the deal, the eurozone’s ESM will be the primary backbone providing funding to Member States requiring financial assistance under a new ‘Pandemic Crisis Support’ programme. Through the ESM, eurozone countries will have access to up to €240 billion of credit lines to support their national spending programmes.
Crucially for Italy and other hard-hit countries such as Spain, eurozone countries requesting ESM support must commit to exclusively “support domestic financing of direct and indirect healthcare, cure and prevention related costs due to the COVID 19 crisis”. This provides a broad enough umbrella to allow countries to fund any measures necessary to protect and support their economies.
Yet, in a compromise with the Dutch Finance Minister Wopke Hoekstra, despite the current crisis, the ESM Treaty will continue to be applied in full, meaning that countries would have to commit themselves to strengthen their “economic and financial fundamentals” once the immediate crisis is over.
The question of ‘coronabonds’ has been deferred to the next meeting of EU Heads of State on Tuesday 14 April. Finance Ministers, however, did agree to begin work on a “European Recovery Fund” to prepare and support the recovery and kick-start the European economy. Announcing the Fund, Mr. Centeno commented that this initiative would be “temporary, targeted and commensurate with the extraordinary costs of the current crisis and help spread them over time through appropriate financing.” How this fund will be financed will be decided by EU leaders next week. On Italy’s initiative, Mr. Centeno will highlight to leaders that “some” governments (currently a group of about 10), want the European Recovery Fund to be financed through ‘coronabonds’, while others preferred ‘alternative financing instruments’. According to French Finance Minister Bruno Le Maire, the fund could be as large as €500 billion and finalised in the next six months.
Besides ironing out the conditionalities of accessing ESM credit, as expected, Finance Ministers also welcomed and endorsed the Commission’s €100 billion proposal for an unemployment reinsurance scheme, SURE, as well as a European Investment Bank instrument to support and finance companies worth an additional €200 billion.