The heads of state and government of the EU are meeting for the third time in just two weeks to discuss the corona crisis. Once again, the consultation is taking place via video conference. The heads of state are discussing how to tackle the economic consequences of the outbreak to avoid financial collapse.
There is still division regarding additional European subsidies, as became clear on Wednesday during a meeting of the finance ministers. Nine countries called on Wednesday to set up a European ‘debt instrument,’ but other EU countries remain more cautious. The Netherlands is even explicitly against pooling the debts of EU countries. These could be euro bonds, or in this context also called ‘corona bonds.’
It is possible that the heads of state will instruct the eurozone finance ministers to open loans via the emergency fund ESM for corona-related investments. The eurozone countries are the shareholders of that ESM. The Italian government wants to use the ESM fund to tackle the corona crisis without the usual conditions. If countries receive aid from this emergency fund, they are currently required to implement reforms. Italy is one of the countries hardest hit worldwide by the corona pandemic.
Italian Prime Minister Giuseppe Conte has already called for the ESM to be utilized. The fund can currently lend out 410 billion euros. The ESM can also set up a program that would allow the European Central Bank to purchase unlimited government loans from eurozone countries. This has never happened before. The member states are divided on the use of the ESM. Dutch Finance Minister Wopke Hoekstra previously stated that the emergency fund should only be used if all other economic support measures against the corona crisis have failed.
But pressure on the Netherlands is growing, now that nine countries led by French President Macron and Italian Prime Minister Conte advocate the introduction of a new ‘debt security’ with which all 27 member states collectively raise money. In this case, the money would not come from the ESM fund of the euro countries but from government bonds of all 27 EU countries. According to Macron, this would be good to finance policy packages against the economic impact of the virus.
Macron makes this call in an open letter addressed to EU President Charles Michel. The letter is co-signed by the leaders of Italy, Belgium, Greece, Ireland, Luxembourg, Slovenia, Spain, and Portugal. This is not new per se, as during the previous crisis France was also a strong supporter of European bonds because in that way the loans carry less risk. After all, the wealthier countries, including Germany and the Netherlands, provide guarantees.
Just as before, the Netherlands and Germany are not enthusiastic. The Eurogroup is expected not to reach an agreement and will defer the discussion to the heads of government who will hold their video conference Thursday evening. Even then, Prime Minister Rutte will not be enthusiastic. “The countries that have failed to reform are the ones now shouting the loudest for exotic forms of reforms, and we are not going to do that,” is the sentiment expressed within circles of the Dutch cabinet.
As a result, Prime Minister Mark Rutte risks being labeled again within the EU as ‘stingy and greedy’ on Thursday evening after earlier opposing a slight increase in the EU multiannual budget in Brussels. Moreover, this dismissive attitude raises uncertainty about whether the other EU countries would be willing to honor the Dutch request for more financial support for larger parts of Dutch agriculture and horticulture.