Meeting in the 'enlarged Eurogroup' format, the European Finance Ministers approximated their positions, but were unable, during the night of Tuesday 7 to Wednesday 8 April, to finalise a package of measures aimed at completing the arsenal already approved in urgency to face the current COVID-19 pandemic and the coming socio-economic crisis. They will meet again this Thursday, 9 April from 5:00 pm.
"After 16 hours of discussions, we were close to an agreement, but we're not quite there yet. (...) My objective remains: to consolidate the European safety net and commit to a major recovery plan", said Eurogroup President Mário Centeno via Twitter.
Eager not to point fingers at anyone, French Minister Bruno Le Maire considered that a failure was "unthinkable" in the face of the pandemic, welcoming the unity of position of the Franco-German tandem. His German counterpart, Olaf Scholz, hoped for an "illumination" allowing a global agreement before Easter.
The obligation to meet again to finalise the options available for increasing EU aid should result in a fourth EU summit being postponed until after Easter. This is what the entourage of the President of the European Council, Charles Michel, would have told the ambassadors of the Member States to the EU on Wednesday.
ESM. At the beginning of the ministerial negotiations, the differences were great and there was a fear of a quick failure. The outlines of the discussion were widely known (see EUROPE 12463/1, 12462/1). Of the four elements under discussion, two are still under real discussion: the activation of credit lines from the European Stability Mechanism (ESM), the permanent rescue fund for the euro area, and the creation of a European fund to finance economic recovery once the pandemic has been overcome.
The setting of the level of counterparties for the activation of the ECCL credit lines of the ESM at €240 billion is one of the nodes that has not yet been decided (see EUROPE 12461/3).
It is understood that the activation of these credit lines up to 2% of a requesting country's GDP will be accompanied by conditions, in accordance with the Treaty establishing the ESM. However, given the symmetrical nature of the shock to the Nineteen caused by a pandemic from China, these conditions will be much lighter and the same for all recipient countries. And they will not involve the controversial return of creditors ('troika') to the capitals.
It should therefore be sufficient for countries to commit themselves to using the funds granted to provide for health expenditure and to prevent the collapse of their economies, and to comply with the Stability and Growth Pact after the event.
Such a position seems to be corroborated by EU Council experts who, in a specific opinion, consider that these lighter conditions are in line with the European Treaty (Article 125(1) TFEU). See the Council opinion: https://bit.ly/2JRufGF
However, the Netherlands, supported to a lesser extent by Finland and Austria, fears that this scheme could lead to the free funding of budgetary means. They require clear guidance and a commitment by a recipient country to return to a sound fiscal path and to correct macroeconomic imbalances once the pandemic is overcome in a formal Memorandum of Understanding.
"There is no compromise yet on the use of the ESM, and therefore the leaders must decide on this topic. The ESM is a lender of last resort when countries are in deep financial trouble. In our view the use of this budget has to come with some form of conditions", said Dutch Finance Minister Wopke Hoekstra at the end of the Eurogroup, while accepting that the financing of health costs should be unconditional.
Under strong pressure from the opposition, which compares the activation of the ESM to a capitulation, the Italian government does not want to take this step if the conditions attached remain too heavy and stigmatise a beneficiary country. This is why Italy insists on the joint issuance of debt securities at the European level, an initiative that would mark a leap forward in EU fiscal integration.
European Recovery Fund. The creation ex nihilo of a European fund specifically aimed at financing economic recovery was not the subject of much discussion in the Eurogroup. Around the table, a majority of Member States recognise the need for a special instrument to address the scale of the forthcoming socio-economic crisis.
The Eurogroup is therefore looking for a formulation to tell the Heads of State or Government that it is ready to work on the modalities (financing, EU budget, governance) of such an instrument in the coming weeks, on the basis of their guidelines.
But the ministers will not go so far as to talk about the mutualisation of sovereign debt via the issue of ‘coronabonds’, the expression remaining a taboo subject for countries such as Germany and the Netherlands, which refuse to pay without having any right of oversight over the expenditure incurred.
Mr Hoekstra said that "a majority" of countries are opposed to Eurobonds, which he believes would create more problems than they solve. "We would have to guarantee debts of other countries, which isn’t reasonable", he said.
The official position of the Dutch government has been criticised by the European Commission's executive vice-president Frans Timmermans, denouncing a selfish and accusatory attitude in an op-ed published on Wednesday by the Volkskrant newspaper.
France nevertheless defended its proposal (see EUROPE 12460/6). "Raising debt together, for the future, for specific coronavirus related expenses, not on the past, is the best economic solution, because it will cost less and will allow to spread out over time", argued Mr Le Maire.
On Wednesday, more than 300 personalities - economists, MEPs, researchers - pleaded for the creation of Eurobonds with Chancellor Angela Merkel. See their appeal: https://bit.ly/3bZrgYT
SURE. Ministers had a lengthy exchange of views on the modalities of the new temporary SURE instrument with €100 billion to support national short-time working schemes (see EUROPE 12460/1). The text would not have posed any major difficulties politically, compared to other proposals hotly debated during the night.
Ahead of the meeting, two issues needed to be clarified, in particular for the Netherlands, the Scandinavian countries and Austria: the scope of the instrument in gestation and its duration. Some Member States, including some of the Member States most affected by the pandemic, such as Italy, are asking for the scope to be extended to include health expenditure, which is not in the spirit of the text originally presented by the Commission.
In the end, the Member States would have remained fairly close to the initial proposal in order to focus the instrument solely on expenditure relating to the financing of part-time work.
Over the duration of the instrument, Northern Member States expressed their concern that the instrument would become a permanent instrument. It would have been decided to insist on the temporary nature of SURE by specifying that the instrument would be discontinued once the health crisis had been overcome.
In the view of several diplomatic sources, only linguistic and formal clarifications remain necessary.
EIB. Finally, the creation of a pan-European fund within the European Investment Bank (EIB) to provide guarantees to European companies is the least controversial element.
While some countries have raised the possibility of focusing this instrument on SMEs, Mr Centeno's final offer is to retain a broad scope requiring €25 billion to provide guarantees throughout the EU to the tune of €200 billion. (Original version in French by Mathieu Bion with Pascal Hansens)