Eurogroup: first agreement on economic measures (though discussion on ESM and Coronabond still ongoing)

Camilla Palla

After 16 hours of negotiations, agreement was reached within the Eurogroup on the coronavirus package. However, the agreement came in a climate that remains tense. Generally speaking, Italy is satisfied, and the same can be said for the tougher front, made up of the Netherlands and Germany. In short, the compromise that has been reached does not, for the moment, provide for coronabonds, but for a condition-free ESM concerning all, and only those, measures relating to health. The funds will be available to Member States in two weeks.

Specifically, the package foresees three different measures, described by the President of the Eurogroup Mário Centeno as safety nets, addressed respectively to workers, companies and Member States.

The first measure in the package concerns the approval of the Commission’s proposal of April 2 to establish a temporary tool to support Member States in protecting employment in the specific emergency circumstances of the Covid-19 crisis. The tool called Sure adopted by the Eurogroup, would provide financial assistance in the form of EU loans granted on favourable terms to Member States, up to a total of €100 billion, most coming from the EU budget. Access to the tool, based on its legal status, will end once the emergency has passed. The Netherlands has strongly insisted on this point being extremely inflexible on the time clause throughout the negotiations.

The second measure regarding companies has not seen any great controversy. European companies, in particular small and medium-sized enterprises, underlie the rebooting of the European economy, and are the players which needing more investments. The Eurogroup has approved the initiative of the European Investment Bank to create a pan-European shield to guarantee € 200 billion in loans to companies facing severe liquidity losses.

The third measure concerns the activation of the much-discussed EMS. This involves about € 240 billion, about 2% of the Eurozone GDP, which will be made available to the Member States. Credit lines with standardised conditions will be set up, the only requirement being that such credit be used to support the financing of direct and indirect costs in the health sector in the treatment and prevention of Covid-19. The credit line will be available until the end of the crisis. There is, however, no relaxation in the conditions for non-health expenditure. This has triggered a strong debate between political forces and Member States.

In the meantime, discussions will continue in the coming days at EU level on the possible activation of the coronabonds, with Germany apparently now willing to agree, while the Netherlands still remains adamantly against. However, the possibility of a green light is not very likely. At the moment, the decisions of the Eurogroup need to be turned into regulatory tools, and the Finance Ministers will continue to work on this before the next meeting scheduled for April 24 and 25.

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