Despite the words of Angela Merkel, who last week did not rule out the possibility of the European Union moving towards “coronabonds”, this mechanism – which would allow to issue joint debt between member states to face the new crisis – is still nothing more a mirage.
Several countries, such as France, Italy or Portugal, have called for this solution to be adopted to combat the devastating effects of the pandemic, but diplomats heard by the Financial Times say that this mechanism “was not discussed in depth” at this Tuesday’s Eurogroup meeting. , which brought together Eurozone finance ministers via video conference. What is on the table, for now, is the use of the European Stability Mechanism, the fund that rescued member states, like Portugal, during the Euro crisis.
At the end of the meeting, Mário Centeno, president of the Eurogroup, wrote on the page of the European Council that “there is great support for considering a safety net for the pandemic crisis based on an existing instrument of the European Stability Mechanism”.
That mechanism, the ECCL, which has 410 billion euros available, would make it possible to lend to Euro countries the equivalent of about 2% of each country’s GDP. The use of this mechanism would serve as a kind of protection against the “moods” of the market. In other words, investors, in principle, would charge an acceptable amount for loans to member states, because they would know that they have an alternative available at low rates.
About the “coronabonds”, however, not a word from Mário Centeno in this text. The Portuguese finance ministers made it clear, however, that member states “are committed to exploring all the necessary possibilities” to help European economies overcome “these difficult times”.
Sources heard by the Financial Times say the discussion of “coronabonds” – as they were dubbed by Bloomberg – was short-lived at the meeting after German Finance Minister Olaf Scholz warned that he would not be available for a polarized debate over the mutualization of debt. The British newspaper says that there were no concrete proposals for the creation of eurobonds and that most ministers focused on the European Stability Mechanism.
In a press conference by videoconference, after the meeting, Mário Centeno and the European commissioner for Economic Affairs, Paolo Gentiloni, did not, however, rule out the creation of this mechanism. The commissioner, quoted by the Financial Times, guarantees that this is still a possibility “among several tools on the table” and that the discussion on the topic would continue.
The Portuguese Government’s position was once again stressed, this Tuesday, in Parliament by António Costa. The Prime Minister said that it would be “symbolically very important to be able to have a joint issuance of debt titled by ‘eurobonds’ or ‘coronabonds’, or whatever you want to call it“ to “support financing needs, but also because it was a very strong political message that Europe as a whole gave to the whole world ”.
This hesitation to move on to the “coronabonds” comes after Angela Merkel – who is at the end of her term – admitted as possible the joint issue of European debt to overcome the crisis. The German Chancellor’s surprising words were spoken at last week’s extraordinary European Council meeting, according to Bloomberg, after a suggestion by Italian Prime Minister Giuseppe Conte. Merkel would later tell reporters that she asked Finance Minister Olaf Scholz to study that possibility. For now, however, that was not the path pointed out at the Eurogroup meeting on Tuesday.
So far, this possibility, inspired by the famous “eurobonds” – which gained some strength during the euro crisis, but which never went through the scrutiny of northern European countries – has always been outright rejected by the German chancellor.
The European response to the coronavirus crisis has been made on several fronts. The European Commission has already relaxed the tax rules of the Stability Pact and is now temporarily granting State aid to companies in difficulty. It also launched an investment package to help health systems, small and medium-sized enterprises and the labor market.
The ECB, for its part, put on the table a “bazooka” of 750 billion euros for the purchase of public and private sector assets.