BRUSSELS (Reuters) – The European Union faces an existential threat if it cannot unite to fight the coronavirus crisis, Italy said Thursday as the divided bloc sought to save talks over a rescue to help struggling economies.
FILE PHOTO: Italian Prime Minister Giuseppe Conte addresses the Senate, the upper house of parliament, on the spread of coronavirus disease (COVID-19), in Rome, Italy, March 26, 2020 REUTERS / Alberto Lingria / File Photo
So far, an agreement has proven elusive amidst tense discussions between the more conservative fiscal north and the indebted south, which has been hit hard by the pandemic and lobbied for unprecedented measures like joint issuance of EU debt.
On Wednesday, sixteen hours of talks between EU finance ministers over a package of half a trillion euros collapsed. They were scheduled to resume at 3:00 p.m. GMT on Thursday to lobby for an agreement to help governments, businesses and individuals weather a deep recession that the pandemic is expected to cause in Europe this year.
“It is a great challenge for the existence of Europe,” Italian Prime Minister Giuseppe Conte told the BBC. “If Europe fails to propose a monetary and financial policy adapted to the greatest challenge since the Second World War, not only the Italians but the European citizens will be deeply disappointed,” he said.
For weeks, the EU has struggled to show a united front in the face of the pandemic, with the 27 member states fighting over economic bailouts, medical supplies and border restrictions.
France and Germany push for compromise to break the deadlock, but budget hawk Austria said that even if willing to make concessions, the disputed “euro bonds” were still banned in Vienna.
“This is out of the question for us,” said Minister of Finance Gernot Bluemel.
A senior EU diplomat said the risk increased that finance ministers would only fix the divisions in order to announce an agreement, but leave the main issues unresolved to national leaders.
“There is a lot of pressure for an agreement today,” said the diplomat. “Germany and France are pushing. But it is not easy … we may be moving towards a formal agreement which does not really solve much in practice. ”
The package under discussion would bring the EU’s total budget response to the epidemic to € 3.2 trillion, the largest in the world. But it includes contentious elements that reveal deep divisions between countries over the sharing of the financial burden of crises, bringing back bitter conflicts and mistrust of the 2010-2012 sovereign debt crisis.
Another problem is to agree on the conditions under which euro area governments could access cheap credit from the euro area rescue fund, the European Stability Mechanism (ESM).
Italy and most other countries are willing to accept very light conditions, but the Netherlands wants tighter rules, including country-specific economic criteria, which is politically unacceptable for Rome.
“It is important that we make this decision today on the 500 billion euros that are under discussion – it is an incredibly large sum of money that we could use to help a lot of people, especially in the most hardest hit, Spain and Italy “, German Minister of Economy Peter Altmaier said.
Other elements of the package under discussion are more guarantees for the European Investment Bank to support companies and a program to help subsidize wages across the block so that companies can reduce working hours, not jobs.
But a separate plan to finance recovery from the epidemic raises more questions. France and the countries of the South want the money – perhaps up to 3% of the EU’s GDP, or more than 400 billion euros – to be borrowed jointly on the market by all the states of the EU.
This is a red line for Germany, the Netherlands, Finland and Austria, which strongly oppose the joint issuance of debts, even in an emergency such as the pandemic of coronavirus.
Ministers could get around the problem by simply mentioning the need for a stimulus fund and asking the 27 national leaders of the bloc to decide how to finance it.
Report by Jan Strupczewski, Michelle Martin, Gabriela Baczynska, Francois Murphy; Editing by Catherine Evans, Nick Macfie and Pravin Char