EU finance ministers failed to agree on crisis measures to help European countries withstand the economic shock of the coronavirus outbreak Tuesday, leaving it to leaders to break the logjam at a summit this week.
The COVID-19 outbreak has brought the European economy to it knees and Italy, with the backing of France and Spain, wants a massive response from EU partners in a historic act of financial solidarity.
But northern countries, led by Germany and the Netherlands, are not in a hurry and believe a huge stimulus announced by the European Central Bank, backed by national spending, is adequate for now.
“We are committed to explore all possibilities necessary to support our economies to get through these difficult times,” said Eurogroup chief Mario Centeno, who could not find a consensus after two hours of talks.
“This discussion has just only started and more work is needed to get to the finish line,” added Centeno, who is also Portugal’s finance minister.
‘Wrong at this time’
At the heart of the split is the deep unease among the northern and wealthier European nations about the financial discipline of their southern partners, especially since the dark days of the eurozone debt crisis.
Countries like France, Spain and Italy have long called for a eurobond, that is in effect joint borrowing by the 19 members of the euro single currency, that could serve as the bedrock of a safer and more unified European economy.
Italy, backed by France, recently renewed the call by asking for EU-wide “corona bonds”, but ahead of Tuesday’s talks Germany angrily dismissed the idea as the return of the politically poisonous “eurobond” under another name.
“I can only recommend that we don’t hold a mock debate for ideological reasons, in which everyone digs out their preferred solution from five or 10 years ago,” German Economy Minister Peter Altmaier said in Berlin.
“It’s not about a fundamental change of strategy for ideological reasons. That would be wrong at this time and we won’t go along with it,” he added.
Given the acrimony, governments will spend the next days working towards agreeing on a more surgical approach that would tap into the eurozone’s massive bailout war chest to help countries in need, especially Italy.
‘Driving through the mist’
Controlled by the 19 finance ministers from the euro single currency bloc, the European Stability Mechanism (ESM) has over 400 billion euros ($430 billion) in firepower and could raise more.
But the Netherlands said it was too early to burn cash from a fund that is one of the EU’s most significant financial weapons after the ECB.
“We have to be honest here. We are driving through the mist. We are unsure what is exactly ahead of us,” said Dutch Finance Minister Wopke Hoekstra.
The ESM “is one of the most substantial things in our arsenal and it is invariable that we keep it for what it is designed for,” he added.
Designed in the debt crisis, the fund has the main purpose of rescuing countries that are shut out of the markets — which is not the case now.
But the ESM can also offer loan guarantees for countries that ask for it, though Italy, already under a pile of debt, is reluctant to do so, afraid of signalling to the markets that it has money problems.
ESM programmes also come with demands to enact painful reforms, which Italy is reluctant to accept when what it actually wants is an act of friendship in a desperate moment.
A eurozone source said credit lines would likely be agreed in the end, but even that would be difficult.
EU leaders are to meet on Thursday by videoconference.