Eurogroup agrees on half a trillion euros in measures to combat COVID-19

The Eurogroup reached an agreement on Thursday to mobilise more than half a trillion euros in loans to help states, companies and workers affected by the coronavirus, but left for later the discussion on the issue of “coronabonds” to finance the recovery.

The President of the Eurogroup, Mário Centeno, said at the end of the meeting by video conference that this is an “ambitious” and “unthinkable response a few weeks ago”, which reveals that “faced with a huge threat to our future, we are ready to bury our differences”.

The Eurozone finance ministers, joined by the other EU partners, resumed negotiations on Thursday, which had to be suspended on Wednesday for lack of consensus after 16 hours of discussion. The meeting began late, but on the basis of a draft agreement developed in intensive bilateral meetings, which started with the support of France, Germany, Spain, Italy, the Netherlands and Centeno, after having managed to iron out the differences between The Hague and Rome that blocked the previous meeting.

The agreement provides for a short-term package of measures based on three pillars: a credit line from the European Stability Mechanism (MEDE), the rescue fund, with 240 billion euros in loans; a fund from the European Investment Bank with up to 200 billion euros in credits for companies and a temporary fund against unemployment with 100 billion.

The final stumbling block in finding an agreement was the conditions for accessing MEDE credits, as the Netherlands continued to call for macroeconomic conditions, such as structural reforms, to be imposed on the beneficiaries. This was a red line for Spain and Italy, although the rest of the countries agreed with them that there was no point in imposing conditions such as those for financial rescues as this was a crisis for which no state was responsible.

Finally, the agreement sets as conditions for access to the line - which may lend each country up to 2% of its GDP - that the funds be used for health expenditure, whether direct or indirect, for the coronavirus, and that the countries then strengthen their economies, complying with Community tax rules. The Netherlands has accepted a formulation that satisfies southern countries, although its finance minister, Wopke Hoekstra, said on Twitter that if the funds are used for “economic support”, not health spending, it will be “with conditions”.

On the other hand, the Eurogroup approved the ‘Sure’ fund against unemployment, which will have 100 billion to give credits in favorable conditions to the countries, which will be able to use them to finance schemes of reduction of the subsidized workday in order to avoid layoffs. To avoid the reticence of some countries that feared that this would be the embryo of a permanent European unemployment insurance, the agreement clarifies that it is an instrument for the duration of the pandemic and that it does not prejudge the discussion on a permanent insurance.

They also gave the green light to the EIB fund, which will have 25 billion in guarantees provided by Member States to mobilise up to 200 billion in loans to companies, including SMEs, affected by the pandemic.

The second focus of the Eurogroup's debate was the recovery plan once the pandemic is over, and the sticking point, the possibility of this being financed by the issue of mutualised debt of the Twenty-seven, the coronabonds or Eurobonds. A dozen countries, including Spain, France and Italy, are calling for joint debt issues in the face of a crisis in which not all have the same scope for action. Germany, the Netherlands, Austria and Finland, on the other hand, have rejected a measure that would also involve a joint response to the risk of default.

Finally, the Eurogroup agreed to work on a temporary recovery fund, the amount of which it did not specify, but left it up to the heads of state and government to decide on “their sources of finance and innovative financial instruments”. The agreement, therefore, does not make any reference to the mutualisation of debt, as claimed by Spain.

“Some Member States believe that this (financing the fund) should be achieved by issuing common debt; other States say that alternatives must be found,” he simply pointed out at the press conference after the meeting on a debate that was thus postponed until the next European summit. The recovery plan will be discussed at a further summit on 23 April.

Despite this, the third vice-president of the Spanish government, Nadia Calviño, considered that a “good agreement” has been reached. “We will continue to work on common financing mechanisms for economic recovery,” she said on Twitter. The Commissioner for the Economy, Paolo Gentiloni, stressed that this recovery fund will be “crucial” in order to avoid increasing economic divergence in the Union as a result of the response to the crisis. “This would be a danger for our Union,” he said.