Euro zone finance ministers negotiated late into the night on Tuesday in a marathon effort to thrash out a recovery plan to save the continent from the profound economic damage of the coronavirus pandemic.
The issue of how to finance the massive public spending and stimulus packages governments plan to inject into national economies revealed bitter divisions between European Union states.
Ireland was among nine member states to call for joint debt issuance in the form of the so-called coronabonds or eurobonds, which supporters say would bring down borrowing costs and show European solidarity in a time of unprecedented crisis.
But the proposal is politically toxic in countries like the Netherlands, Germany, Austria and Finland, triggering fears that their taxpayers could end up on the hook for weaker economies.
Ahead of the Eurogroup meeting there were indications of a shift in German public opinion on the issue, with even former hardline tabloid Bild coming out in favour of coronabonds.
However the Dutch government remained steadfast in its opposition to joint debt issuance, backed by domestic consensus. A huge majority in the Dutch parliament voted to support the government’s stance ahead of the meeting, including a range of opposition parties.
"Eurobonds, I wouldn't do that, and the cabinet also wouldn't do that," said Dutch Finance Minister Wopke Hoekstra.
Southern EU states have warned that a big gesture is needed to counter unhappiness with the bloc, particularly in Italy where a sense of abandonment during the pandemic is compounding years of unhappiness over economic stagnation.
“Millions of Europeans believe in the European Union. We must not abandon them. We must give them reasons to keep believing. And we must act now or never, because, right at this moment, Europe itself is at stake,” warned Spanish Prime Minister Pedro Sanchez ahead of the meeting.
EU countries agreed to come up with new proposals after failing to reach agreement in March.
Recent days saw a flurry of alternative proposals, including a call by the economy and internal market commissioners Paolo Gentiloni and Thierry Breton for a European fund to issue long-term financial bonds.
France has proposed the creation of a joint EU solidarity fund worth several hundred billion euros to finance long-term recovery. However, it may struggle to get support as the fund would be financed by joint borrowing, which crosses a red line for the frugal camp.
One proposal that could win approval is to offer credit lines from the euro zone bailout fund, up to 2 per cent of a country’s gross domestic product, or €240 billion in total. Burned by its experience with bailout austerity, Italy is dead set against any oversight of national finances such a scheme might entail, but it is possible the credit line could be extended with fewer conditions.
Countries could also agree to grant the European Investment Bank €25 billion of extra guarantees so it can step up lending by €200 billion, on top of a €40 billion increase in lending already under way.
The European Commission has also proposed raising €100 billion on the market, against €25 billion of guarantees from all 27 governments in the bloc, to subsidise wages of workers so that companies can cut working hours of employees rather than sack them.
The Netherlands and the Commission have also proposed creating an emergency support funds of up to €20 billion to issue grants for medical supplies and healthcare.
