Early in the evening, the newspaper La Stampa indicated that the expression “necessary and urgent” in Charles Michel’s statement on the creation of the Recovery Fund “for the countries hardest hit by the crisis” had been a requirement – and this time accepted – of the first Italian administration. Moreover, Conte – in his statement to the Italians – always spoke of access to money in the wrong direction.
“The amount of the Recovery Fund should reach 1.5 billion euros and should guarantee non-repayable transfers to Member States, which are essential to preserve national markets, equal conditions, and to ensure a symmetrical response to a symmetrical shock. ”. French President Emmanuel Macron further dug the differences: “We need transfers of resources to the EU countries most affected by the crisis, not loans”.
As for final decisions, European leaders approved the € 540 billion “safety nets” package agreed in a Eurogroup negotiating marathon last week. More importantly, they have set a concrete date for this package of measures to be operational, meaning that the money is accessible, on favorable terms, for Member States and companies affected by the crisis: 1 June.
The markets had shown little enthusiasm for the plan announced by the Eurogroup – now formally approved by European leaders – because, repeating the pattern seen in the European debt crisis (or even in the so-called “Juncker Plan”): once again, “the European Union’s historic tradition of presenting plans with large numbers … which are reached with great creativity“, Say Berenberg economists.
What is spoken of, concretely? For example, the largest component of the 540 billion announced by Mário Centeno is related to the possibility for countries to use the European Stability Mechanism (ESM) in a proportion of up to 2% of their GDP. The 240 billion is therefore no more than the approximate sum of 2% of each country’s GDP (about 4 billion in the case of Portugal). But that sum includes 2% of Germany’s GDP, 2% of France’s GDP, 2% of Holland’s GDP, and so on.
“The point is that, for the largest member of the eurozone, financing costs are already so low that have no advantage in asking for ESM support“, Say the economists. In other words, making MEE funds available to all is a way of helping some countries to limit their own financing costs – both in the MEE itself and, indirectly, in the financial markets – and to bring them closer to the costs paid by perceived issuers as “safer”, like the German federal state. From that perspective, what advantage would Germany have to use the ESM when it can access these lower interest rates alone?
This means that the 240 million euros of the MEE component of the Centeno plan correspond, in fact, to less than a third: something like 70 to 75 billion, calculates the Berenberg, adding 2% of the GDP of the countries that are more likely to resort to the mechanism, including Italy, that could “take” about 40 billion.
Germany’s 10-year interest rate is lower, at this time, to -0.4% (negative interest), which contrasts with 1.2% (positive) in Portugal, 1% in Spain and more than 2% in Italy, which this Friday risks seeing the agency S&P to cut the rating. Even with the stimulus and intervention measures announced by the European Central Bank, markets are already reflecting on interest rates additional countries are required to carry an additional risk that some economies will find it more difficult than others to respond to the pandemic and relaunch the economy. But that divergence could be accentuated if the uncertainty drags on, however much the ECB guarantees that it will not tolerate further “fragmentation” of countries’ financing costs.
In conclusion, economists’ analysis is not encouraging. “In achieving only very limited progress on the substance, EU leaders have once again failed [na missão] to send a clear signal of solidarity ”. On 6 May there will be new answers to this question, and then weeks or months of detailed negotiations will follow.
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