EU nations battle to bridge bitter split over 'coronabonds'

By: AFP      Published: 12:08 PM, 8 Apr, 2020
EU nations battle to bridge bitter split over 'coronabonds'
French Economy and Finance Minister Bruno Le Maire (L) speaks on the phone with his German counterpart during a break in a videoconference meeting of the Eurogroup of eurozone finance ministers to discuss coronavirus response on April 7, 2020, at the French Economy ministry in Paris.  Photo AFP

EU finance ministers were mired in marathon talks on Wednesday unable to bridge differences on how to rebuild their economies after the coronavirus, with a North versus South split on burden-sharing for hard-hit countries.

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 for over 15 hours from Tuesday into Wednesday, with Italy and Spain pleading for 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.

"All I can say is that there is no deal at the moment and I would not take for granted that there will be a deal," a European source said as dawn broke over Brussels.

'No business as usual'

Berlin and its allies are insisting that any European rescue should use the eurozone's 410-billion-euro ($443-billion) bailout fund, as well as wait to see the effects of the massive monetary stimulus already unleashed by the European Central Bank.

Eurogroup chief Mario Centeno 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. 

"We all know this is not the time for business as usual policies. We must show our citizens that Europe protects them," said Centeno, who is also Portugal's finance minister.

Ministers must "make a clear commitment for a coordinated and sizable recovery plan," he said.

On Monday, German Chancellor Angela Merkel reiterated her government's position in favour 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.

"Eurobonds represent a serious response tailored to the crisis we are living through," Italian Prime Minister Giuseppe Conte argued on Monday.

Influential France backs Italy and Spain and insists on the economic destruction caused by COVID-19 demands a new way of thinking in Europe, and wants member countries to help each other in unprecedented ways.

No troika

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 programmes 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.

"It is not about implementing any economic restructuring programmes," said German Finance Minister Olaf Scholz trying to dispel memories of the EU-IMF troika that ruled over the debt crisis bailouts of Greece, Portugal and Ireland.

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 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.