By Jan Strupczewski
BRUSSELS (Reuters) – Euro zone finance ministers are likely to agree on Tuesday on measures worth more than half a trillion euros to fight the economic fallout of the coronavirus epidemic, but say that plans to jointly issue debt will need more talks.
Italy and Spain, the hardest hit by the epidemic, have also been the most vocal about the need for creating eurobonds to cushion the deep recession that the pandemic is expected to cause in Europe this year and finance a recovery.
But the Netherlands, Germany and several others are against mutualising debt and argue that since all euro zone countries can still cheaply borrow on the market and EU limits on deficits have been lifted for the pandemic, there is no need to create eurobonds now — especially since the process would take years.
“There’s a lot of room for solidarity within the existing instruments and institutions. We have to exploit these tools fully and remain open to doing more. A strong package is in the making,” the chairman of EU leaders, Charles Michel, said.
The ministers will hold a teleconference at 1300 GMT on Tuesday. They last prepare a list of ideas for EU leaders, focusing on three or four steps that can be taken immediately.
The first measure will be standby credit lines from the euro zone bailout fund of up to 2% of a country’s gross domestic product, or 240 billion euros in total. They will come with minimal conditions focused on health issues to alleviate Italy’s concerns it will be told what macroeconomic reforms to implement.
The second will be an agreement to grant the European Investment Bank 25 billion euros of additional guarantees so the bank can increase its lending by 200 billion euros, on top of a 40 billion-euro increase in lending already under way.
The third will be support for the European Commission’s plan to raise 100 billion euros on the market against 25 billion euros of guarantees from all 27 EU governments, to subsidise wages of workers so that companies can cut working hours of employees rather than sack them.
Finally, the ministers are likely to back a plan by the European Commission and the Netherlands to create an emergency support fund issuing grants for medical supplies and health care, which could reach some 20 billion euros.
The ministers are also likely to take note of a French proposal to create a joint EU solidarity fund to finance long-term recovery measures, worth several hundred billion euros and financed by joint borrowing.
But the plan, while included in the list for leaders, is unlikely to get broad support. It its recourse to debt mutualisation is a red line for the camp led by the Netherlands and Germany.
“On the joint liability of all governments, it is no surprise that there are different opinions on this,” one senior official involved in preparations for the meeting said.
“There is a clear need for more work and discussions.”
(Reporting by Jan Strupczewski; additional reporting by Gabriela Baczynska; editing by Larry King)
