Sixteen hours of intense negotiations via teleconferencing came to nothing as eurozone finance ministers failed to agree on a common coronavirus stimulus package for its 19 member states, all of which are members of the European Union.
Eurozone finance ministers were widely expected to agree Tuesday on measures worth more than €500 billion to combat the immense economic damage being inflicted by the COVID-19 pandemic. They will try again on Thursday. The disappointing finish to negotiations that began on a high note Monday was due to intractable disagreements over the so-called "corona bonds," or a common European bond meant to address the recession-induced by the COVID-19 pandemic.
This new instrument will combine securities from different European countries and will help mitigate the economic fallout from the pandemic, which has transformed Europe into the pandemic's epicenter. Four of the world's five most coronavirus infected countries (Spain, Italy, France and Germany) are in Europe. Italy and Spain are the most vocal about the need for issuing corona bonds to cushion the deep recession the pandemic is expected to cause in Europe this year and finance a recovery.
Germany and the other members of the "Frugal Four" (Austria, Finland, and The Netherlands) torpedoed the plan to issue corona bonds, arguing the European Stability Mechanism (ESM) will suffice for this purpose. ESM is an emergency fund established in the wake of the sovereign debt crisis that began in 2008 with the collapse of Iceland's banking system.
Italy, France, Spain, Ireland, and Luxembourg were pushing for a written commitment to work towards the common debt issuance, or the corona bonds. Opposition by the Frugal Four, especially The Netherlands, defeated the corona bond proposal. Mario Centeno, Portugal's finance minister who chairs the meetings among the 19 ministers, tweeted the bad news.
"After 16h of discussions we came close to a deal but we are not there yet. I suspended the #Eurogroup & continue tomorrow, . My goal remains: A strong EU safety net against the fallout of #covid19 (to shield workers, firms &countries)& commit/ to a sizeable recovery plan," tweeted Centeno.
Opponents of the corona bonds are working on a new credit line to be provided by the ESM. A few of the countries want some conditionality attached to the corona bonds. Italy and Spain, which are hard hit by the pandemic rejected any fiscal targets in exchange for new funding.
President of the European Council Charles Michel said there's a a lot of room for solidarity within the existing instruments and institutions.
"We have to exploit these tools fully and remain open to doing more. A strong package is in the making," he pointed out.
