EU finance ministers failed on Wednesday to agree on a bailout plan to help hard-hit member states face the coronavirus outbreak, after Italy refused to abandon its plea for “coronabonds” to share the burden.
“After 16 hours of discussions, we came close to a deal but we are not there yet. I suspended the Eurogroup and (we will) continue tomorrow Thursday,” said Eurogroup chief Mario Centeno.
Despite efforts, bickering EU finance ministers were unable to bridge differences on how to rebuild their economies after the coronavirus, with a North versus South split on burden-sharing for the worst affected countries, especially Italy and Spain.
The European economy has been battered by the pandemic as national governments impose strict lockdowns that have closed businesses and put normal life on hold.
The ministers’ video conference dragged on from Tuesday into Wednesday, with Italy and Spain insisting on a solidarity fund that would be paid for by European partners jointly borrowing money on the financial markets.
Sometimes called “coronabonds,” this proposal is being firmly resisted by Germany, the Netherlands and other rich countries who see it as an attempt by the indebted south to unfairly take advantage of the north’s fiscal discipline.
Berlin and its allies insist instead that any European rescue should use the eurozone’s 410-billion-euro (US$443-billion) bailout fund, as well as wait to see the effects of the massive monetary stimulus already unleashed by the European Central Bank.
Centeno, who is also Portuguese finance minister, is tasked with finding a compromise in a fight that has revived the bitter acrimony that split Europe during the eurozone debt crisis a decade ago.
“My goal remains: a strong EU safety net against the fallout of Covid-19 to shield workers, firms and countries, and commit to a sizeable recovery plan,” he said.
On Monday, German Chancellor Angela Merkel reiterated her government’s position in favor of activating the European Stability Mechanism (ESM) bailout fund to help countries that need it.
But she pointedly did not mention shared borrowing such as coronabonds or eurobonds, angering Rome.
Influential France has backed Italy and Spain, but on Wednesday said it was looking for a compromise hand in hand with Germany.
“With German Finance Minister Olaf Scholz, we call on all European states to rise to the exceptional challenges to reach an ambitious agreement,” France’s Bruno Le Maire said after the talks ended.
Italy is refusing recourse to the ESM, which was created in 2012 during the eurozone debt crisis when states like Greece no longer had access to borrowing on the markets.
Its programs come with strings attached for countries that use it – heavy conditions that Italy and Spain say they would refuse if other capitals were to try to impose them.
Northern countries insist that conditions can be kept to a minimum given the cause of the crisis, but that in the longer term a country would have to get their finances in order.
“In the ‘northern’ view, the idea that there will never be any conditions to the ESM money, and the mutualization of debt, is a bridge too far,” said an EU diplomat.
Officials in Brussels had expected Germany and its allies to prevail on Tuesday, although ministers would not dismiss ideas such as coronabonds outright.
Whatever is eventually agreed by the ministers will then go to EU leaders, who are expected to convene by video conference later in the month.
Also under discussion is a lending facility from the European Investment Bank for struggling small and medium-sized businesses, and a guarantee fund for certain national unemployment schemes to be run by the European Commission.