Mário Centeno is the man in charge of brokering agreement between the 19 finance ministers of the euro zone as they wrestle over how to rescue the bloc from a downturn expected to be the worst in a century. ”There is a lot at stake. This sort of social experiment in which we are in today, in which we lock down our economies, our societies...this is something absolutely new in modern times,” the Portuguese finance minister and eurogroup president told The Irish Times. “If we fail to reconstruct the single market the degree of destruction can be really a disaster.”
He believes a mix of grants and loans contingent on reforms are key to a solution that will win approval across member states. The countries are split over how to fund recovery between a "frugal" group led by the Netherlands and countries, such as Italy, that call for greater pan-EU solidarity to smooth out the coronavirus's uneven toll.
After member states failed to come to an agreement this month, the European Commission was charged with putting together a proposal for a recovery fund that would be linked to the EU's seven-year budget. The budget has itself been held up by disagreement over whether it should be increased or not, and must be agreed to stop the EU running out of funds at the end of the year.
The commission is expected to propose leveraging additional member state contributions to the budget to borrow from financial markets, and making the funds available as a mix of grants and loans.
Among the “innovative” instruments involved could be an enlarged Budgetary Instrument for Competitiveness and Convergence (BICC), according to Mr Centeno. The BICC is an instrument designed last year that would allow member states to apply for grants to implement investments and reforms.
He indicated that loans or grants from the fund might be conditional on reforms. These might not be fiscal changes as in the past with bailout funds, but might be policy-driven, such as a requirement to digitalise their economies or cut emissions.
Strings attached
“I expect the recovery fund to have some strings attached. Money is limited and we will need to make choices, but green projects must be prioritised, and also digitalisation projects,” Mr Centeno said.
“It would be strange to ask a country hit by the coronavirus to do a labour market reform in exchange of support to fight the pandemic. That’s just not right.”
Distribution of the recovery fund would vary according to which countries were hardest hit.
The question of how long EU budget rules will remain suspended to give states greater spending flexibility will depend on the course of the crisis.
"This will be evaluated throughout the recovery period," Mr Centeno said. "Remember that the uncertainty at this stage is still very, very large. Although all countries in Europe are doing a very good job at containing the virus, there is still a lot we don't know about this epidemic – a second wave, a vaccine, a cure. So we should not preclude or limit our capacity to act in the future given these uncertainties."
The economist acknowledged that to tie the recovery fund to the EU budget risks wrapping the contentious issue in with a whole range of potential topics for disagreement between member states. However, he was insistent that what the bloc has managed to agree so far has achieved far more, and far more quickly, than was possible during the euro zone crisis of the last decade.
“I know that Europe quite often is portrayed as being slow to respond to the challenges it faces, but honestly this time around we proved otherwise. We found sizeable and timely solutions for the emergency,” Mr Centeno said.
Budget rules
He has struck a delicate balance before. After his appointment as finance minister by Portugal’s socialist-led government, he managed to reverse some austerity policies while insisting on the observance of EU budget rules.
The economist’s election to the position of eurogroup president in 2018 was heavy with symbolism as he was the first to hold the position from a southern member state and to represent a country that had gone through an EU bailout.
Mr Centeno now expects that economies will look different on the other side of the crisis. “This crisis will leave its scars. Many people are debating the idea of changes in globalisation and the now famous supply chains. We may have an adjustment period regarding these.”
