#Coronavirus – Broad agreement that a common debt instrument is needed

| March 25, 2020

President of the Eurogroup, Mario Centeno

Yesterday (24 March) EU finance ministers met to discuss the coronavirus pandemic and the measures it can take to address its impact on Europe’s economy. The most contentious question of using the European Stability Mechanism to support states remained unresolved, though there was ‘broad support’. Centeno has kicked this upstairs by sending it to heads of government to resolve, writes Catherine Feore

ESM precautionary credit lines are designed to maintain access to market financing for ESM member countries whose economic conditions are still sound but have come under stress. The credit line prevents crises by acting as a safety net that strengthens the creditworthiness of the beneficiary country, allowing it to issue bonds at lower rates. 

Centeno reported that there was broad agreement that the significant resources of the ESM should contribute to the EU’s coordinated response. He said in his press conference that there was no ‘moral hazard’ and it was to respond to the external and symmetric shock of COVID-19. There is broad support, but not unanimous support, to make a Pandemic Crisis Support safeguard available, within the provisions of the ESM Treaty, building on the framework of the existing Enhanced Conditions Credit Line (ECCL), which is a precautionary credit line of up to 2% of GDP, but more work will be carried out on details.  

European Stability Mechanism Managing Director Klaus Regling said that the ESM has experience and expertise in dealing with crises, describing this as its ‘comparative advantage’. Regling said it had an available lending capacity of €410 billion, the equivalent of 3.4% of eurozone GDP that was available in times of need 

The last Eurogroup asked the ESM to look into how it could contribute to Europe’s collective response to the corona crisis within its mandate. Among the existing tools Regling described the precautionary credit line as its most suitable instrument to respond to the corona challenge, particularly the precautionary credit line called ECCL (Enhanced Conditions Credit Line). 

Today (25 March) in a letter signed by the heads of government of Belgium, France, Greece, Ireland, Italy, Luxembourg, Portugal, Slovenia and Spain to European Council President Charles Michel, leaders called among other things on the need to work on a common debt instrument issued by a European institution to raise funds on international markets ensuring stable long term financing required to counter the damages caused by the pandemic. 

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