Getting Italy and the Netherlands to agree on the conditions that will be required of countries that use the European Stability Mechanism (ESM) credit line is currently what separates the Eurogroup from a compromise solution that would allow the euro area, already next week, have a joint response to the crisis to present.
The proposal on the table is still, found the PUBLIC, largely the same that had already generated an agreement classified as “broad” by Mário Centeno at the last meeting of the Eurogroup, but that was not enough for a compromise to be reached. consensual position among government leaders: the possibility is open for eurozone countries to resort, if they wish, to an ESM credit line worth up to 2% of their GDP (which in the Portuguese case corresponds to around 4000 million), benefiting from the low interest rates at which this entity manages to fetch money from the markets.
It is a solution that is far from being the complete mutualization of the debt that the southern countries, such as Italy, France, Spain and Portugal intend, through the issuance of the so-called “coronabonds”, but, being more acceptable by the northern countries as Germany, Holland, Austria and Finland can provide at least a first support to States in their search for financing in the markets.
The obstacle to a complete understanding, however, lies in the definition of the conditions that will be required of the States that use the ESM financing. The credit line to be used (the Enhanced Conditions Credit Line, ECCL) provides in its rules that there is a conditionality associated with its use by countries.
And what most countries are willing to accept is to assume a much lighter version of the conditions, just stating that the money is used to combat the negative effects of the pandemic, without making demands similar to those of the programs rescue troika, for example, forcing countries to target specific budget balances and structural reforms.
Even on the German side there seems to be an opening for a very marked relaxation of conditions. In preparation for the next Eurogroup meeting, the German Ministry of Finance produced a working document, released by the newspaper Political, in which the willingness to “abandon, as far as possible, strict macroeconomic conditionality” was assumed.
However, Italy and the Netherlands remain reluctant to accept this solution. On the Italian side, it is intended to be defined in writing that no conditions are set for access to the credit line. And on the Dutch side, it is intended to be written that long-term conditions will be established. Finding, at the Eurogroup meeting next Tuesday, a way to bring these two positions together is the challenge.
Speaking to PÚBLICO, the Vice President of the European Commission, Valdis Dombrovskis acknowledged that “ministers are still discussing what kind of conditionality” and that “the views of Member States on this topic are very different”.
Explaining that the proposal made by the MEE was “of a two-stage conditionality, first with a concentration on the response to the coronavirus and at a later stage seeing the extent to which a more classic macrofinancial conditionality can be applied”, Dombrovskis argues that “the conditionality does not it can simply be raised since it is a legal requirement “, but that” the key is to find a pragmatic commitment “.
Although discussions are focused on this solution, this does not mean that other ideas are not put on the table at the next meeting of the Eurogroup. France, for example, has its own proposal to create a fund that the various countries could access. And the issue of “coronabonds” will continue to be defended by several capitals, probably coming up against the opposition of others.
In addition, the Eurogroup will also want to proceed with some of the measures proposed in the meantime by the European Commission, namely the Sure program, based on the concept of “short-term work supported by the State”, with an estimated value of 100 billion euros, and the launching of new credit lines by the European Investment Bank (EIB).
All of these discussions take place at a time when the first economic indicators that confirm an unprecedented drop in economic activity in Europe during the month of March are already being released. The advanced indicators for industrial production (PMI) fell last month to a pace never seen before in the historical series and the number of new unemployment claims in countries like Spain or Germany exceeded previous highs.