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Eurozone countries strike deal on coronavirus rescue 

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Via Financial Times

Eurogroup finance ministers have reached an agreement on an emergency rescue package aimed at responding to the economic pain triggered by the coronavirus crisis.

Officials said that talks among players including the Netherlands, Italy, Germany and France on Thursday evening yielded a compromise position that can now be put forward for consideration by EU leaders 

Finance ministers clapped over their teleconference at the final accord. “We acted decisively for our citizens in less than a month,” Mário Ceteno, the eurogroup president, told ministers in the room 

Crucially, the text to be presented to EU leaders will not insist on placing macroeconomic conditions on credit lines from the bloc’s bailout funds. That had been a key demand of the Dutch government and was resisted by Rome. “The Dutch have compromised,” said a senior official in the talks.

The principal elements of the package include the preparation of European Stability Mechanism precautionary credit lines; a boost to the lending capacity of the European Investment Bank; and a new unemployment insurance scheme proposed by the European Commission. 

The group will also propose a recovery fund to help with the post-lockdown economic recovery, but how exactly this will be funded will remain a subject of future debate and intense controversy. 

A subset of euro area countries met ahead of planned talks on Thursday evening to find a compromise palatable to both The Hague and southern European capitals including Rome and Madrid.

The text, seen by the Financial Times, says that countries accessing the ESM’s credit line would only have to “commit to use this credit line to support domestic financing of costs direct and indirect healthcare, cure and prevention related costs due to Covid-19 crisis”. 

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Going into the talks efforts focused on pressing The Hague to back away from its hardline stance on the ESM. In the first round of eurogroup talks a deal appeared to be within sight in the early hours of Wednesday morning but was ultimately judged unachievable because of barriers put up by the Dutch finance minister, Wopke Hoekstra. 

The Hague had issues with a number of aspects of the package, including the scope of the European Commission’s unemployment reinsurance scheme, or SURE, but the key stumbling block was its requirement that there be macroeconomic conditions attached to any precautionary credit lines offered by the ESM. 

Other countries, including Germany, judged that a way forward that kept the Italians on board would be possible only under ultra-light conditionality that firstly required the money be spent directly on the response to the crisis and, secondly, obliged member states to continue abiding by the fiscal rules by which they are in any case bound as EU member states.

Mr Hoekstra previously said that the Netherlands does not want to prevent immediate financial assistance from being granted to Italy and other countries for their healthcare systems, but he also wanted this to be followed up with plans for post-crisis reforms to ensure they can eventually repay the funds.

While Germany and France in particular remain divided over the vexed question of greater mutual debt issuance as part of an eventual rescue plan, they worked closely together in attempting to bring all parties together behind the eurogroup package prepared by Mr Centeno.

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Thursday’s talks were meant to start at 5pm but were repeatedly delayed as a subset of the eurogroup, including Germany, France, Italy and the Netherlands, worked at brokering a compromise that could satisfy all sides. 

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