EU backs half a trillion euro stimulus, but reluctant to pool debt

BRUSSELS – Finances of the European Union Ministers agreed on Thursday evening on a plan calling for more than half a trillion euros in new measures to bolster their economies against the onslaught of the coronavirus, but dealt a blow to their most affected members, l ‘Italy and Spain, avoiding their calls for the bloc to issue a common debt.

Even in the face of an unprecedented economic crisis caused by a virus that killed more than 50,000 citizens of the bloc and infected more than half a million, the richest countries in Northern Europe were reluctant to subsidize cheap debt for the hard-hit south.

And while Germany, the Netherlands and others have shown greater generosity than in previous crises, details of the measures announced have shown that they have gone to great lengths to limit and control how funds are used.

The programs that finance ministers agreed to recommend to their country’s leaders for final approval included a € 100 billion loan plan for unemployment benefits, € 200 billion in loans for small businesses and access to 240 billion euros in loans for euro area countries in order to tap into the euro area rescue fund. One euro equals about $ 1.09.

But ministers were unable to reach an agreement on the issuance of joint bonds, called “corona-bonds”, despite calls from the leaders of Italy and Spain, who are bearing the brunt of the crisis, after fierce resistance from Germany, the Netherlands and others. And, in a victory for the Netherlands pushing to restrict the use of bailout funds, ministers decided they should be limited to health-related programs.

Throughout its history, the European Union has refused to issue joint bonds, but the scale and scale of the current crisis had led some analysts to believe that the bloc might be willing to support the idea this times, which would have represented a major step in bringing closer to becoming the United States of Europe. Debt pooling was the basis of the creation of the United States, and this would be seen as an important step in the bloc’s governance structures moving towards federalism.

But the need for unanimous support for major measures – always a brake on swift and bold decisions by the European Union in times of crisis – derailed the idea of ​​the obligation and meant that negotiations on the form of the economic package were strained. It took a second meeting to reach consensus, after an attempt on Tuesday ended in acrimony.

Finance ministers were well aware of the dramatic toll the virus was taking on all the economies of the bloc and that a failure to produce a deal would be disastrous for the confidence of the citizens of the bloc and for the financial markets. As the United States prepared to announce stimulus measures, there was a growing sense that Europe was once again doing too little and too slowly.

“The most important thing for the finance ministers was to sign an agreement and a slogan of 540 billion euros,” said Mujtaba Rahman, head of the Europe practice at Eurasia Group, a consultancy firm. “But despite everyone patting each other on the back, there are a lot of substantial loopholes in the deal which will not become apparent until later,” he added.

At stake is the recovery of the richest bloc of nations in the world, including the 19 members of the euro area whose currency is one of the largest in the world.

Failure by the European Union to help its most affected members would not only harm its economies, but would also affect regional policy and societal attitudes, and cause the bloc to lose weight on the world stage.

Although the figure of half a billion euros, as well as the national stimulus programs of each country, represent a significant sum, it is still difficult to assess whether it will be almost enough to help European economies resist. the fallout from the health crisis and to achieve all kinds of growth as economic activity gradually picks up.

The richer countries in the bloc may have thwarted common obligations, but, inevitably, bailouts for the worst-hit economies will involve subsidies from the richer north to the poorer south, a recurring and toxic theme in the history of the block.

While all countries agreed on Thursday that there should be “solidarity” with the countries most affected and that European economies are so deeply integrated that the bailouts are useful to all, the the form of this solidarity has proved to be deeply controversial.

For Italian Prime Minister Giuseppe Conte, Thursday’s deal will be a tough sell: he has passionately defended the joint issuance of debts and demanded easier access to the eurozone bailout fund to support the resumption of its debt. country. He has neither.

Joint bonds would increase borrowing costs for the wealthiest and most frugal northern countries, whose leaders fear such a move could fuel anti-EU populist forces within their borders. They argue that, by treaty, each member country of the European Union is responsible for its own finances.

But anti-European sentiment is also on the rise in Italy and Spain, the third and fourth countries and economies in the bloc, and the two EU countries hardest hit by the virus. The outrage and despair over thousands of deaths has fueled the feeling that Europe is not helping them in their difficult times.

The internal political struggles between the leaders and ministers of the bloc, roughly drawing the battle lines of previous crises that have pitted members of the north against those of the south, are threatening to breed a new wave of Euroscepticism and populism.

The European Union, already battered for ten years by a major financial crisis, the migration crisis and Brexit, cannot afford to default on its members and allow questions about its usefulness to deepen.

The recession that the euro zone will experience because of the coronavirus promises to be brutal: economists predict that the production of the bloc should decline this year by around 10%. In contrast, the recession that followed the last financial crisis was, at its worst year in 2009, 4.5% in the euro area.

This week brought home at what point things are improving in some of the region’s largest economies. New data released on Wednesday showed that the French economy, the region’s second-largest, shrank 6% between January and April compared to the last quarter of 2019, the worst performance in half a century, and is now officially in recession. .

And in Germany, the continent’s main economy, five major institutes have predicted that the second quarter of this year will lead to a 10% recession. For Italy and Spain, things could be even worse, with UniCredit predicting a 15% recession in each.

Paolo Gentiloni, EU economy commissioner and former Italian prime minister, advocate for a special coronavirus fund and joint corona bonds, said Thursday’s measures were not the last word in the collective economic response from Europe.

The fund was vaguely mentioned at the bottom of ministers’ conclusions as a “stimulus fund” to be discussed further by EU leaders next week.

“This is not the end of the road. Thousands of European citizens are still fighting for their lives, ”said Gentiloni.

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