EU ministers need to broker a solution for Europe’s economy that addresses scale and urgency of #coronavirus impact

| April 7, 2020

Today (7 April) is a crucial day with Eurogroup leaders meeting to discuss the joint economic response to the crisis caused by the Coronavirus pandemic. On 26 March, heads of government, unable to reach agreement passed the buck to their finance ministers and the Eurogroup to come up with a solution, writes Catherine Feore.

Clashing editorials over the weekend with conflicting positions show how far apart the different countries remain, with the European Commission trying to bridge this divide through its own proposal.

Internal Market Commissioner Thierry Breton and Economy Commissioner Paolo Gentiloni (former Italian prime minister) published a joint op-ed in Le Monde and Frankfurter Allgemeine Zeitung, the leading French and German newspaperswhere they call on the 27 EU member states to demonstrate their solidarity by creating a European tax-funded fund capable of issuing long-term bonds. 

Breton and Gentiloni want their idea to be complementary to the President of the European Commission Ursula von der Leyen’s plan to make full use of the EU budget for 2021-2027, with the aim of reviving the economy after the crisis. As useful as the EU budget may be it is thought to be nowhere near the necessary scale to address the sharp economic downturn and the prolonged impact of the pandemic

Yesterday, in an interview with Brussels think-tank Bruegel. Gentiloni said he was not proposing the mutualization of debt, but the mutualization of programmes and missions for the next months and yearsHe said that the old discussions were negative and that the EU needed to look forwards. 

Gentiloni said that it was clearly distinct from a new Marshall Plan, in that Europe would have to come to its own assistance and that the Marshall plan proposed in 1947 was not introduced fast enough at the end of the war.  It is unclear how this will overcome the concerns of a country like the Netherlands where there are strong objections not just to debt mutualization, but also to the current – very modest – EU budgetary proposals.

Gentiloni and Breton are proposing a “fourth pillar” in addition to the other three: The European Stability Mechanism aid fund, the European Investment Bank and the recently proposed joint support for partial unemployment plans in EU member states.

Eight European countries, including France, Italy, Spain, Luxembourg and Ireland have recently called on Europe to consider some sort of debt mutualization. French President Emmanuel Macron has said that if a minimum of solidarity will not be shown to the countries in need “then we accept that Europe has no common destiny”. Also, Italian Prime Minister Giuseppe Conte has described Coronabonds as “European recovery bonds”, which he considers to be necessary to “finance the extraordinary efforts that Europe will have to make to rebuild its economic and social tissue.”

Over the weekend the Spanish prime minister indicated that while Spain wanted to see mutualization, ‘Spain was also a pragmatic country’.

Debt mutualization, in the form of a euro/corona/solidarity bonds, is firmly rejected by Germany, the Netherlands and other countries, who took the same position in the course of the 2008 financial crisis. 

At the same time German Foreign and Finance Ministers Heiko Maas and Olaf Scholz have also penned an editorial which has been published in several European publications in France, Italy, Spain, Portugal and Greece. These leading German politicians from the right (CDU) and left (SPD) says that the German government will support a European crisis response package based on the framework of the European Stability Mechanism, but which does not include the establishment of new European troika-like crippling conditionality, but which draws the line at the issuance of bonds. This would make us of the Enhanced Conditions Credit Line (ECCL) available and proposed last week by Klaus Regling, director of the ESM.

In parallel, in yet another editorial, the President of the French National Assembly, Richard Ferrand, and the President of the German Bundestag, Wolfgang Schäuble – known for his intransigence to the plight of Greece during the financial crisis – call for “more solidarity and financial integration [in Europe] …We can and must mobilize and extend with all the necessary flexibility the European budget and the multiannual financial framework (MFF) and the whole structural, regional and social funds”, as well as the European Investment Bank and the European Mechanism. for stability, wrote the two leaders of the parliamentarians in Paris and Berlin. This proposal appears to be more in line with that being proposed by Gentiloni and Breton.

An agreement may not be fully hammered out today, but the are chinks of light. Leaders need to recognise the scale of the problem, the need for trust and the recognition that it is not only in their common interest but in every country’s self-interest to find a common solution that meets the scale of this challenge. 

Finally, leaders from north and south should reflect on the impact and the motivations of the Marshall Plan, it was not just an act of charity, the United States also needed to help its own economy, it also recognized that the need for political stability in Europe. Those two objectives are as relevant today as they were in 1947. Germany and the Netherlands will also suffer if the economy of Europe as a whole is weak, divisions will grow and the European project may not be done, but there is a growing and real threat from populists to the sort of Europe, the European Union represents.

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Category: A Frontpage, coronavirus, EU, European Commission, Featured Article, France, Germany, Health

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