This time, Southern Europe – France, Italy, Spain, Portugal and Greece – is not alone. Four other eurozone countries – Belgium, Ireland, Luxembourg and Slovenia – have joined it and are asking the Commission to issue Eurobonds. The windfall subscribed would finance the fight against the Covid-19, but also measures to prevent the looming recession from being too brutal. “Let us recognize the gravity of the situation and the need to act for a rapid economic recovery after the crisis,” they wrote in a letter to Charles Michel, president of the European Council. During the financial crisis in 2008-2009, a call to issue eurobonds had fizzled out.
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Italian Prime Minister Giuseppe Conte has just delivered the book on the job. Already economically fragile, his country was the most severely hit in Europe by the Covid-19. The entire economic machine, with the exception of essential services, is at a standstill. It is in this context that he asked his counterparts at the last European summit on February 20 to make common cause and proposed the issue of “coronabonds”, a particular category of bonds to respond to the impact. of the pandemic.
Risk pooling
All eyes therefore turned to Germany, the leader of the countries which had shown fierce opposition to Eurobonds in 2008-2009. According to Valentin Bissat, economist at the Mirabaud bank in Geneva, Berlin did not want risk pooling. “She feared that the peripheral eurozone countries would give up implementing structural reforms and reducing their budget deficit due to more attractive interest rates,” he said.
Change of direction? Questioned last weekend about coronabonds by the Berlin press, German Chancellor Angela Merkel did not reject them from the start. It must be said that the German economy is going through a rough patch. The German economic institute Ifo said on Thursday that expectations for exports plummeted from -1.1 points in February to -19.8 points in March. Unheard of since May 2009.
MES conditions
What would coronabonds be used for? “They would allow Italy and other countries to reduce their cost of funding due to the pooling of risks between euro area states,” said Valentin Bissat. The level of debt will increase and it is a question of preventing them from being strangled by the cost of servicing the debt. A joint and several guarantee would reduce borrowing rates for countries such as Italy and Spain. “
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At a Eurogroup meeting on Tuesday by videoconference, some finance ministers suggested using the European Stability Mechanism (ESM) created in 2012 instead to help countries in difficulty. If necessary, the MES could, according to them, issue bonds dedicated to the Covid-19 crisis. “The problem is that this fund subjects its aid to strict conditionality by imposing structural reforms and balanced budgets on the countries requesting its aid, notes Valentin Bissat. What Italy and other countries are not ready to hear. “
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