European Union finance ministers failed to break a deadlock in all-night talks on more support for their coronavirus-hit economies, with north-south divisions flaring and straining the bloc’s unity.
A final draft agreement presented to the 27-minister videoconference at 0400 GMT on Wednesday morning ran into two main sticking points – conditions for access to emergency credit lines in the euro zones’s bailout fund, and the notion of issuing joint debt by the bloc.
Below is an explanation of what the latest draft agreement says on the two points of contention. It has yet to win approval from the ministers, who reconvene at 1500 GMT on Thursday.
* ESM CREDIT LINES
The euro zone’s European Stability Mechanism (ESM) could offer standby credit lines worth up to 2% of a country’s economic output, with Italy leading the southern camp in demanding free access to the money.
But the Netherlands represented the fiscally conservative northern countries calling for more specific economic conditions.
The draft text, which was seen by Reuters, said the existing ESM precautionary credit lines could be “adjusted in light of this specific challenge” – the spread of the coronavirus – and that countries “requesting support would commit to use this credit line to support domestic financing of costs strictly related to the COVID 19 crisis.”
It went on to say: “Afterwards, euro area member states would strengthen economic and financial fundamentals, consistent with the EU economic and fiscal coordination and surveillance frameworks, including any flexibility applied by the competent EU institutions.”
Officials who took part in the meeting and diplomatic sources briefed on it said Italy was leaning to accept that wording on macroeconomic conditionality but the Dutch did not think it went far enough. In the end, both rejected the text.
* PROSPECTS FOR JOINT DEBT
The draft agreement does not mention directly issuing joint debt, let alone the politically charged word “coronabonds”.
It does, however, refer to a Recovery Fund that could be discussed in the future and “innovative financial instruments” as possible sources of finance.
The phrase “innovative financial instruments” has previously been used by advocates of debt mutualisation to move away from the divisive notion of “coronabonds” while putting down in writing effectively the same idea.
Officials who took part in the meeting and diplomatic sources briefed on it said Italy rejected this draft as falling short of expectations while the Netherlands thought it creates misplaced expectations for the future.
The sources said France was also initially calling for a more specific reference to issuing joint debt, but then got on board with further, watered-down drafts in an effort to secure an EU compromise.
Germany and Spain were also in favour of such an agreement, but Austria, Sweden and Denmark sided with the Netherlands, the sources said.