Es was a marathon session under difficult video conference conditions and with many interruptions. For three days before Easter, the EU finance ministers negotiated joint EU aid for states that could be overwhelmed by the financial consequences of the Corona crisis. The result is remarkable: A € 500 billion aid package for companies, employees and states should be ready in June.
However, the compromise has one flaw: Of all those who need the help most urgently, they don’t want to know about it. Stumbling block is one of the three central elements of the Corona package: aid loans from the euro bailout fund for countries in financial need.
The European Stability Mechanism (ESM) in response to the Euro crisis created after 2009 is expected to provide more than 200 billion euros, so countries in an emergency at short notice Loans access two percent of their economic output.
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If governments can bring themselves to do it. Italy’s Prime Minister Giuseppe Conte, for example, recently made it clear that he doesn’t want the 37 billion euros that Italy could call from the ESM. When the finance ministers of the euro zone and the other EU countries join together again for a video conference on Friday, it will therefore also be a matter of making the aid loans acceptable to Italy and other countries.
That is delicate enough. In Rome, Madrid and elsewhere on the periphery of the euro zone, the ESM, whose programs in the euro crisis were monitored and implemented by the troika of the European Central Bank (ECB), International Monetary Fund (IMF) and the European Commission, is the epitome of Loss of sovereignty and spoilage by the rich Northerners.
The problem is not purely Italian. Madrid also rejects the use of the ESM, and in Greece the government has already accused the government of trying to bring the country back under the aegis of the IMF and other international donors.
Prime Minister Conte is driven
Rome, however, has shown its aversion most clearly so far. One reason is that Prime Minister Conte is driven by populists who attack him from both left and right. But it is also because ESM aid loans do not fit the self-image of many Italian voters.
After all, Italy is an industrial nation and the third largest economy in the EU after Germany and France. The country may be heavily indebted, but so far Rome has still met its obligations. Unlike Greece a good ten years ago, Italy is not facing insolvency.
Nevertheless, in Rome and Brussels, there is also concern that the economic consequences of the Corona crisis, which has hit Italy particularly hard so far, could drive up national debt so much that investors who lend money to Rome receive higher interest rates than previously demanded – or the country is even having problems borrowing money at all.
In its latest economic forecast, the European Commission assumes, for example, that Italy’s national debt will rise to almost 160 percent of the country’s economic output this year due to the economic downturn and expensive Corona aid.
But that’s not all: Six other euro zone countries are expected to exceed the delicate debt limit of 100 percent this year: Belgium, Greece, Portugal, Spain, Cyprus – and also France. So far, the ECB’s Corona program has protected the countries concerned from such a development.
Nevertheless, Brussels wants to ensure that the capitals concerned use the ESM if necessary. In addition, both the ESM and fiscal-conservative states such as Germany and the Netherlands are well suited to the highly indebted EU members.
The ESM contract actually stipulates that the fund may only lend money if it is subject to strict conditions. The founders thought of structural reforms such as Privatizations of state-owned companies or pension reforms, such as those that the troika in the euro crisis implemented in the countries that have slipped under the bailout umbrella.
However, Germany and other countries are prepared to waive such conditions in the so-called ECCL credit lines discussed. The only requirement should be that the ESM funds are used to finance direct and indirect health costs in the Covid 19 crisis; both for the treatment and for the prevention of diseases.
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This condition is actually not and should ultimately only be in the agreement because ESM loans have to be linked to conditions. Valdis Dombrovkis, Vice President of the EU Commission responsible for economic issues, has already made it clear that the condition should be interpreted as flexibly as possible. It shouldn’t be a problem for any country to showcase its corona costs of two percent of economic output, he said recently.
This is understandable, because the entire lockdown with its economic faults ultimately serves prevention. It is likely to be important what formulations the finance ministers agree on Friday – especially when it comes to the loan agreement that individual countries conclude with the ESM in an emergency.
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