FRANKFURT, GERMANY – Governments of 19 countries that use the euro overcame heated differences to agree on Thursday that measures could provide more than half a trillion euros ($ 550 billion) to businesses, workers and health systems to cushion the economic impact of the epidemic virus.
Mario Centeno, who heads the group of finance ministers from the eurozone, called the agreed package of measures “totally unprecedented …. Tonight, Europe has shown that it can hold on when the will would be there. “
The agreement reached between finance ministers on Thursday did not, however, provide for broader cooperation in the form of a shared loan guaranteed by all member countries.
Officials left the issue open, prompting their national leaders to resolve the issue in a new discussion on a fund to support longer-term economic recovery. Yet Italian Finance Minister Robert Gualtieri tweeted that the loan shared via “Eurobonds” had been “put on the table”.
Borrowing together to pay the costs of the crisis was a key demand from Italy, Spain, France and six other countries. Italy and other indebted members are expected to see their debt levels increase due to the recession caused by the virus epidemic. But the shared debt was rejected by Germany, Austria and the Netherlands. Dutch Finance Minister Wopke Hoekstra tweeted that “we are and will remain opposed to Eurobonds”.
The question now is whether the package will be seen as large enough to impress the markets and allow eurozone governments to manage the new accumulations of public debt from the recession. The concern is that the increase in borrowing could in the longer term trigger a new financial crisis in the euro zone like the one that threatened monetary union in 2010-2015. For now, borrowing costs on the bond market of indebted countries like Italy are under control by the European Central Bank, which has launched a bond purchase program of 870 trillion euros. However, this program has so far been limited in size or duration.
Ministers agreed that pressed governments like Spain and Italy could quickly tap into the euro area bailout fund up to 240 billion euros ($ 260 billion), provided the money is spent on their health systems and that the line of credit expires after the epidemic is over. A dispute over the conditions had delayed a decision at a conference on Tuesday.
The agreement also provides up to 200 billion euros in credit guarantees through the European Investment Bank to keep businesses afloat and 100 billion euros to compensate for the loss of wages of workers assigned to shorter hours.
Centeno said the countries would work on a longer-term stimulus fund and, as part of this, would discuss “innovative financial instruments, in line with EU treaties”. He said some countries support shared borrowing and others oppose it.
The agreement overcame a bitter disagreement between Italy and the Netherlands on the conditions for granting loans to the rescue fund, the European stability mechanism. Italy rejected the idea of using the fund due to the MES’s requirement that the money be accompanied by conditions for reform. This recalled the difficult conditions imposed on Greece, Ireland and other indebted eurozone countries that were bailed out during the eurozone debt crisis.
The compromise reached in the final declaration indicates that countries could borrow up to 2% of annual economic production at favorable rates to finance the “direct or indirect” costs of the current health crisis. Centeno said at a post-decision video press conference that he expected countries to be able to identify enough health costs to access the money.
The package is in addition to major spending measures at the national level by member governments. The European Union has also taken unprecedented steps to set aside its limits on debts and grants made by national governments to their home businesses.