(Bloomberg) — European Union countries set out competing visions of how to deal with the economic consequences of the coronavirus pandemic as the bloc continued its struggle for a united response.
A week after a video conference of all 27 EU leaders ended in acrimony and recrimination, euro-area governments are still at odds over how to cushion the economic impact of the virus, especially in those countries worst hit such as Italy and Spain. France and the Netherlands, at opposing ends of the argument, put forward their own ideas on Wednesday, while the European Commission unveiled a plan for loans to prevent unemployment.
With the euro area facing the biggest recession in its history, disagreements over the best course of action have revived memories of the debt crisis a decade ago which pitted northern European governments against the south amid disagreement over the mutualization of debt.
According to a memo circulated to finance ministers and seen by Bloomberg, France is proposing the creation of an economic recovery fund to support countries with the economic fallout of the coronavirus pandemic. It would be based on “the joint issuance of debt instruments to mutualize the cost of the crisis.” The French also want the European Stability Mechanism, the euro area’s bailout fund created during the debt crisis, to set up a credit line for the pandemic.
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Euro-area officials said it was difficult to see how hardline countries, such as Germany and the Netherlands, which have so far vehemently opposed any talk of debt mutualization, could support the French proposal.
After coming in for criticism for what was seen as a lack of solidarity toward the hardest hit countries, the Netherlands has now offered something of an olive branch. It is proposing an emergency fund of as much as 20 billion euros ($22 billion), according to a separate memo seen by Bloomberg. The fund would only be used for emergency aid needed to cope with the pandemic rather than other economic measures such as funding employment and would be financed by bilateral contributions by member states.
Ultimate size of fund proposed by the Netherlands will depend on “who wants to participate,” Dutch Finance Minister Wopke Hoekstra said in a phone interview, stressing that “it really has to be substantial,” giving an estimate for the Dutch contribution in the form of “a gift” of “roughly up to a billion” euros.
Senior finance ministry officials discussed the two proposals in a video conference on Wednesday evening ahead of next week’s meeting of finance ministers. While most countries seemed open to talk over all proposed plans, they also warned that a lot of what was put on the table would be difficult to sell back home, two officials familiar with the discussion said.
While so far it seems unlikely common ground can be found on joint debt, positions are converging on the use of the ESM credit lines. Officials are working out whether they can effectively scrap the conditions attached to these loans.
Still, it is unclear whether Italy would support such plans as it has been arguing that credit lines would carry a stigma and are not the right tool to address a so-called symmetric shock, which has hit all economies without discriminating.
Plan for Workers
Earlier on Wednesday, the European Commission signaled it’s set to unveil a 100 billion-euro plan to help governments pay companies to keep workers in jobs. It will take the form of a lending scheme underpinned by guarantees from EU member countries, according to a draft document seen by Bloomberg.
“It is intended to help Italy, Spain and all other countries that have been hard hit,” Commission President Ursula von der Leyen said in a statement. Helping people resume their regular jobs as soon as demand picks up “is crucial to restart Europe’s economic engine without delay.”
Von der Leyen didn’t give full details of the project, called Sure, which will be fully announced by the commission later this week.
According to the draft of the commission plan, EU governments will be able to request financial assistance if “public expenditure has suddenly and severely increased as of Feb. 1, 2020, due to the adoption of national measures directly related to short-time working schemes” because of the coronavirus outbreak.
The plan would see the EU raise money on international markets backed by guarantees from member states, which should be “irrevocable, unconditional and on demand,” the draft said. That’s a form of shared liabilities that could make the plan unpalatable to the Germans and the Dutch.
(Updates with Dutch finance minister in seventh paragraph, finance offical call in eighth.)
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