Impatient – or desperate – with the inaction of his partners, the Italian Prime Minister warned that he would not sign the summit conclusions, if the “timid” paragraphs on the economic response to the crisis were not substantially changed. And he made an ultimatum to the leaders: to mitigate the multiple losses of the pandemic, “innovative financial instruments” will be needed – they now have ten days to present “appropriate solutions”.
The position of strength of the Prime Minister of Italy was immediately supported by the President of the Government of Spain, Pedro Sánchez. The leaders of the two countries so far hardest hit by the new coronavirus crisis in Europe have streaked paragraph 14 of the draft conclusions from top to bottom, in which the Council invited Eurogroup ministers to “develop without delay the necessary technical specifications” so that the European Stabilization Mechanism, in charge of rescue programs for countries in difficulty, could open a precautionary credit program, with strict conditions, available to all EU Member States.
An idea rejected by Conte and Sánchez. Instead, they proposed, the European Council should ask a group of five leaders – the Commission, the Council, the Parliament, the European Central Bank and the Eurogroup – to explore other proposals. And, on the other hand, I wanted to say different from those that were expected to be discussed again by the ministers of the Eurogroup.
“How can anyone think that instruments designed in the past, and made to respond to asymmetric shocks and financial tensions in individual countries, are the most appropriate to respond to this external shock that no country is responsible for?” Asked Giuseppe Conte .
“Coronabonds, never! “
Accompanied by the other leaders who had sent him a letter to the President of the European Council demanding “decisive actions” (including António Costa), the Prime Minister of Italy assumed the confrontation and forced an arm of both Germany and with the Netherlands, the two countries that at the beginning of the meeting had been emphatic in their position. “Coronabonds, ever! ”guaranteed the Dutch Prime Minister, Mark Rutte.
Nothing new. Unsurprisingly, the divisions that manifested themselves in the response to the 2008 economic recession and limited European action in the subsequent euro crisis – and that still prevent the Union from understanding each other to resolve the migration crisis – were once again evident, exposed by the coronavirus pandemic.
It was thought that the different characteristics of this crisis – by having reached almost all countries almost equally and by not being able to accuse anyone of having been guilty – would allow for a greater consensus in the direction of greater risk sharing, namely through a mutualisation of debt that would allow countries most pressured by markets to obtain at low cost the financing they need to counter the crisis.
However, ideas like issuing calls coronabonds are not being accepted by the North and the most that can be expected is the opening of credit lines in the amount of 2% of GDP by the European Stability Mechanism.
In this discussion, the argument put forward by Germany and its usual allies in these matters is that all eurozone countries are now able to finance themselves smoothly in the financial markets and at low rates in historical terms.
This line of argument even ended up being strengthened during this Thursday thanks to another measure taken by the European Central Bank (ECB). The entity led by Christine Lagarde, perhaps anticipating the absence of joint action by governments, decided to take a step that further strengthens its ability to buy, almost without limits, the debt securities of the eurozone countries. And what happened was a significant drop in interest rates demanded by the markets for all countries, including Portugal and Italy.
Eurogroup has two weeks
At the end of the meeting, once the possible compromise was agreed, the leaders endeavored to say that the EU would continue to respond in a “solidary”, “cohesive” and “coordinated” manner to the crisis. But as much as they endeavored to manifest unity, paragraph 14 rewritten after many hours of negotiation keeps the initiative to define future financial support instruments in the hands of the Eurogroup, which now has two weeks to move forward with proposals. “These proposals have to take into account the unprecedented nature of the shock that affects all our countries”, say the leaders, who promise “to intensify their response, if necessary, with new actions depending on developments”.
At the end of the work, the President of the European Council, Charles Michel, and the President of the European Commission, Ursula von der Leyen, recognized that after a “very strong debate”, the leaders were unable to find an agreement on the issue of coronabonds – although this measure was widely discussed due to the demand of the nine countries that defended that this taboo be overturned, including Portugal.
But, for now, it seems to have avenged the position of countries that refuse to discuss the mutualisation of risk between countries that use the euro, and that defend the conditionality for money transfers to countries in need – although the explicit reference to the use of the Mechanism European Stabilization Council has disappeared, indicating that the future solution may go beyond what was initially thought.
Michel and Von der Leyen avoided making big comments on the subject. The two preferred to insist on the commitment made by the heads of state and government to do whatever is necessary to save lives, keep the internal market open and functioning or fight the disinformation that jeopardizes European solidarity.
“Our urgency now is to combat the pandemic and its most immediate consequences”, reads one of the incontrovertible points of the conclusions, in which leaders already reflect on the preparation of “the necessary measures for the return to the normal functioning of our societies and economies, and sustainable growth, integrating the green transition and digital transformation ”. To this end, they ask the Commission to start thinking about an “exit strategy” and design a “comprehensive recovery plan”, with an “unprecedented investment” dimension.