EU's ‘North versus South’ battle gears up over how to tackle economic fallout of Coronavirus

A video summit of EU leaders is expected to focus on disagreements over calls to introduce jointly issued debt - known as coronabonds - as a way of financing measures to counter the economic impact of the crisis.

Photo credit: Adobe Stock

By Martin Banks

Martin Banks is a senior reporter at the Parliament Magazine

23 Apr 2020


Italian Prime Minister Giuseppe Conte, whose country has been among the worst hit by the pandemic, wants special “coronavirus bonds” to help his and other Member States finance health spending and economic rescue programmes.

He restated the call on Monday, asking Member States to “look beyond national borders.”

European Central Bank chief Christine Lagarde also says a one-off joint debt issue of “coronabonds” should be seriously considered.


RELATED CONTENT


Last Friday, MEPs adopted a resolution that calls for bonds “guaranteed by the EU budget.”

But Germany and other Northern Member States, including the Netherlands, have strongly rejected the idea of issuing eurobonds. They fear the crisis could redirect funds away from their countries and to southern Member States such as Italy and Spain.

The idea is not for existing public debts to be mutualised but for the EU to generate finance that would be guaranteed by Member States and spent on alleviating the crisis.

The issue is set to take centre stage when EU leaders hold an online video summit, or conference, later today.

“The only way to neutralise the impact of the crisis is to share the common burden, starting with some eurobonds to lower the interest rate and using the monetary tool to avoid another sovereign debt crisis” Manon Aubry, GUE/NGL co-leader

The “virtual” summit comes in the wake of a recent warning by Spanish Prime Minister Pedro Sanchez that the EU could fall apart in the wake of the crisis. He said, "The EU is at risk if we do not show solidarity.”

Spain and France are other EU countries that have also demanded joint bonds in order to limit the negative effects of the virus on their virus-ravaged economies.

Ahead of the video conference, several MEPs have also called for bonds, including GUE/NGL co-leader Manon Aubry, who said, “The only way to neutralise the impact of the crisis is to share the common burden, starting with some eurobonds to lower the interest rate and using the monetary tool to avoid another sovereign debt crisis.”

Spanish MEP Iratxe Garcia, leader of the Socialists and Democrats in Parliament, has written to Ursula von der Leyen and Charles Michel, presidents of the Commission and Council respectively, urging them to support the “issuing of recovery bonds by borrowing money on the markets and issuing common debt.”

German Greens deputy Sven Giegold said, “It is right to use the scope of the EU budget for joint bonds. It is crucial that the money is not disbursed in the form of loans and that it amounts to at least €1,000 billion. Loans would drive up the debt levels of individual countries.”

“The creation of recovery [corona] bonds should be at the heart of the recovery plan” David Sassoli, European Parliament President

Parliament’s President David Sassoli, who will take part in the summit, said, “The creation of recovery (corona) bonds should be at the heart of the recovery plan.”

In an interview with an Italian newspaper on Thursday, the Italian MEP writes, “The bonds will be an instrument to finance the reconstruction plan and as a guarantee will have the EU’s multiannual budget. They will be the most attractive bonds on the international scene.”

The parliamentary resolution passed last week supports “recovery bonds” that are “guaranteed by the EU budget, and an EU coronavirus solidarity fund of at least €50bn.”

But Dutch ECR member Derk Jan Eppink, disagrees, saying, “Coronabonds would not be an effective way to revitalise the European economy. People urgently need cash. National central banks should instead provide credits at zero interest rates to our citizens and companies.”

On 9 April, the Eurogroup adopted several measures designed to ease the short-term liquidity problem.

These amount to a possible €400 billion and comprise increased loans from the European Investment Bank (EIB), the offer of credits from the European Stability Mechanism (ESM), and a new temporary loan instrument by the European Commission to soften the blow of unemployment.

“Coronabonds would not be an effective way to revitalise the European economy. People urgently need cash. National central banks should instead provide credits at zero interest rates to our citizens and companies” Derk Jan Eppink, ECR MEP

The package complements the EU’s earlier decision to relax its normal rules of state aid and public procurement, as well as the virtual suspension of the Stability and Growth Pact, for the duration of the crisis.

Writing for this website, Charles Grant, director of the UK-based Centre for European Reform, said, “A federal eurobond will enhance the fiscal capacity of the Union without adding to national debt burdens, thus saving national treasuries money.”

He cautions, “If Northern Europe fails to accept eurobonds during such a dire and existential crisis, it never will and that would raise questions about the euro’s long-term survival.”

Aside from bonds, EPP deputy leader Esteban González Pons said Thursday’s summit should agree on a “common exit strategy” from the lockdown.

He called on EU leaders to adopt a “coordinated medical response unit” which, he says, could ensure adequate supplies and test kits as the lockdown eases.

The MEP also called for a “common health app” for citizens and a “Marshall Plan” to jumpstart the economy “to get Europeans back to work.”

Read the most recent articles written by Martin Banks - EU moves to end Cypriot and Maltese Golden Passport schemes

Share this page