The EU and Coronabonds – What comes after the pandemic?

by Lea Schiller

The COVID-19 pandemic has left the European Union a region that is not only hit differently by the virus, but also dealing with diverse economic outlooks. Some countries went into a strict shutdown for months and others started relaxing their measures after just a few weeks. Bound together in the European Union, these countries now have to find a way to keep the region from spiralling into a recession – and provide financial support for the states hardest hit.

In early April, after three days of difficult negotiations, the Council of Ministers decided on a €540 billion relief package – but this is far from where the story ends. For one, experts are suggesting the EU might need another €500 billion to mitigate the effects of the shutdowns. And for another, not all member states are happy with the initial package.

“Italy doesn’t need the ESM,” was Italian prime minister Giuseppe Conte’s comment on the decision, effectively refusing €39 billion in aid. Next to support for installing short-time work and loans from the European Investment Bank, the European Stability Mechanism (ESM) was decided to be the third part of the EU’s relief package. First installed in 2012, its purpose is to support member states who are highly in debt – but its money is bound to strict conditions. Italy’s Five-Star Movement had threatened to end the coalition government should Conte say yes to the ESM – out of fear the country would be put under similar controls as Greece was during the debt crisis. Regardless of the fact that the EU had abandoned all conditions that are usually bound to the ESM out of respect for Italy’s difficult situation, and against initial resistance from the Netherlands.

But Italy is not the only country that wants to move away from the ESM, and install the so-called Coronabonds instead. Next to Italy, France has also expressed their support, with Macron telling the British media that they were “necessary” as otherwise eurosceptic populists in Italy, France and elsewhere would win. Their support has been met with heavy resistance from the northern countries, particularly the Netherlands, Germany, Austria and Finland, which sparked a debate that Conte warned could threaten the existence of the bloc.

“Coronabonds” are essentially the new application of an old idea: joint debt that would be collectively guaranteed.  Which would, as countries like Italy are hoping, lead to lower borrowing costs and more favourable terms. But on the other side, the northern countries are hesitating to sign loans for countries whose spending they cannot control – fearing it will lead to their taxpayers paying the bill; with neither side ready to give, which way the EU will go is still uncertain. And during the summit on the 23rd of April, the European Council passed the initial relief package that was put forward by the EU’s finance ministers – putting the topic of a recovery fund in the form of Coronabonds off for another day.

Photo by Branimir Balogović on Unsplash

References

Investigate Europa (2020, March 23). Widersprüchlicher Umgang mit dem Virus: Wie die EU in der Coronakrise versagt. Der Tagesspiegel. Retrieved from https://www.tagesspiegel.de/politik/widerspruechlicher-umgang-mit-dem-virus-wie-die-eu-in-der-coronakrise-versagt/25672594.html

Brenton, H. (2020, April 19). EU needs extra 500 billion for recovery, says eurozone bailout fund chief. Politico. Retrieved from https://www.politico.com/news/2020/04/19/eu-needs-extra-500-billion-for-recovery-says-eurozone-bailout-fund-chief-193916

Coronavirus-Hilfen: Italien sagt Nein zu 39 Milliarden der EU. (2020, April 14). Tagesschau. Retrieved from https://www.tagesschau.de/ausland/eu-hilfen-italien-101.html

Koch, M. (2020, April 17). Coronabonds: Macron und EU-Parlament erhöhen Druck auf Deutschland. Handelsblatt. Retrieved from https://www.handelsblatt.com/politik/international/zukunft-der-eu-coronabonds-macron-und-eu-parlament-erhoehen-druck-auf-deutschland/25750610.html?ticket=ST-2597453-zTa61Sigy5yOf43fle6W-ap1

Boffey, D. (2020, April 9). EU strikes €500bn relief deal for countries hit hardest by pandemic. The Guardian. Retrieved fromhttps://www.theguardian.com/business/2020/apr/09/eu-risks-break-up-over-coronabonds-row-warns-italian-pm

Einigung der EU-Finanzminster: 500 Milliarden gegen die Corona-Krise. (2020, April 10). Tagesschau. Retrieved from https://www.tagesschau.de/ausland/eu-finanzhilfen-103.html