Leaders face incentives against pandemic, pass hot potatoes to Eurogroup

EU leaders on Thursday (26 March) continued to disagree over the economic response to the coronavirus as Northern countries rejected the idea of issuing joint debt, known as “coronabonds”, proposed by nine member states to finance the recovery.

During a virtual summit held by video conference, the 27 heads of states and government were forced to water down the wording of the text on the European economic response to the coronavirus, after Italy threatened to reject the draft conclusions because of the strings attached to the EU’s financial assistance.

In the end, the European Council passed the hot potato to the Eurogroup of finance ministers, who will once again try to propose solutions to the economic fallout from the coronavirus within the next two weeks.

Speaking to reporters after the video conference, European Council President Charles Michel said EU leaders had tasked their finance ministers “to continue intensive work to come up with a proposal to ensure that we are able to cope with this crisis and to ensure the stability of the EU.”

Eurogroup President Mario Centeno said after the video meeting that he would convene the euro zone’s finance ministers next week in order to advance “swiftly” with the leaders’ mandate.

Centeno explained that finance ministers will try to conclude work on how the European Stability Mechanism, the EU’s bailout fund, could be used to support national economies.

And he added that the Eurogroup will also “pursue other innovative solutions”.

At a video presser, Michel confirmed that the leaders discussed the letter signed by nine primer ministers and presidents asking for “coronabonds” issued by EU institutions for the benefit of all member states.

“We have indeed discussed all the different possibilities to face these challenges,” Michel said, explaining there was a “strong political debate” among EU leaders. “In many important topics we are on the same page, in others, we need to continue the debate,” he admitted.

“Indeed, the room is open for discussion, other possibilities, and therefore the task was very precise for the Eurogroup,” European Commission president Ursula von der Leyen added.


Despite some early signals of openness to discuss “coronabonds”, Germany and The Netherlands made clear they would not accept joint debt instruments.

In their letter, the nine member states defended “a common debt instrument issued by a European institution”, given that “we are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all.”

But Dutch prime minister, Mark Rutte, told reporters in another video presser after the summit that issuing joint debt would be “crossing the rubicon”, because it would turn the eurozone into a “transfer union” in a way that was not foreseen by the Maastricht Treaty.

“I cannot foresee any circumstance under which we will change our position,” he said.

ESM conditionality

Instead, both the Netherlands and Germany supported using the ESM’s €410 billion available.

Last Tuesday, there was a “broad agreement” among finance ministers to use one of the ESM’s tools: the enhanced conditions credit line.

However, the Eurogroup did not enter into details about the conditions that countries would need to fulfil in order to access the funds. Conditionality remains a no-go for Italy and other countries, who argue that the current crisis is caused by a shock beyond their governments’ control.

However, Germany and the Netherlands insist on imposing conditions on countries that would seek assistance, as stipulated by the ESM rules.

“The ESM is our preferred instrument because it was created especially for crises like this,” said German chancellor Angela Merkel said. It gives enough leeway to react without giving up our basic principles, she added in a video statement.

Merkel said that leaders didn’t discuss the conditions that could be attached to the soft loans, a task left for the finance ministers.

Rutte explained that member states needed to have and “informed and intelligent” debate about conditionality. The Netherlands is also reluctant of using the ESM at this stage, given that the bailout fund is considered as a last resort mechanism by The Hague and the crisis could last until May “maybe even June”, said Rutte.

“You have to make sure that you still have cards up your sleeve, and we don’t spend everything in the first two weeks,” he said.

In spite of differences that forced EU leaders to water down the paragraph on the economic response, Rutte was “absolutely convinced” that member states would make progress in the next two weeks on these outstanding issues.

Italy’s threat

But this insistence on the ESM conditionality and the outright rejection of the “coronabonds” almost broke the summit.

Italy threatened to reject the draft conclusions, saying any reference to ESM conditionality was unacceptable.

”How can one think that instruments developed in the past, built to intervene in the event of asymmetric shocks and financial tensions affecting individual countries are adequate for this symmetric shock?” Conte said during the video conference, according to government sources.

Together with Spanish prime minister Pedro Sanchez, Conte proposed setting up a working group made of five leaders of EU institutions – the presidents of the Council, Commission, Parliament, European Central Bank and Eurogroup – which will be tasked to find new economic instruments within 10 days to tackle the pandemic and its economic consequences.

“If anyone should think of personalised protection mechanisms developed in the past, then I want to make it clear: don’t bother, you can keep it, because Italy doesn’t need it,” he told EU leaders.

In comments aimed at soothing German and Dutch concerns, Conte also dismissed the idea of permanent debt mutualisation at the EU level. “Each country is responsible for its public debt and will continue to be responsible for it,” Conte reportedly said during the videoconference.

According to Italy’s government sources, France, Ireland, Greece, Portugal and Luxembourg welcomed Conte’s message during the videoconference.

French President Emmanuel Macron reportedly warned that the coronavirus outbreak risked undoing the bloc’s central pillars like the Schengen passport-free zone if they failed to show solidarity in this crisis, according to a diplomat quoted by Reuters.

“What’s at stake is the survival of the European project,” he told the 26 other leaders in the video conference. “The risk we are facing is the death of Schengen,” Macron added, according to the same source.

The summit statement makes reference to preserving the EU’s internal market despite border restrictions introduced during the coronavirus crisis. It also says measures should include building an emergency stock of medical equipment and easing intra-EU border closures.

The leaders also rubber stamped proposals to suspend EU deficit rules during the crisis, allowing countries to spend freely to fight the virus, regardless of already yawning budget deficits in some cases.

The 27 leaders tasked EU officials to work on an “exit strategy” and recovery plan to help rebuild the economy after the havoc wrought by COVID-19 and the drastic measures taken to fight it.

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