I.The Corona crisis is much faster than usual – even in Brussels. So far, the finance ministers of the euro zone have often met half a day, on Tuesday a good two hours were enough for a result.
At their teleconference, the ministers agreed to use the ESM euro bailout fund in the corona crisis if the need arose.
Agreeing to this compromise was also a concession by Germany and other fiscal-conservative euro countries to those euro members who demanded more solidarity in the Corona crisis.
However, if Federal Finance Minister Olaf Scholz (SPD) believed that this would end the discussion about further crisis measures, such as the communitization of debt in the euro zone, he was wrong. The next morning, a large part of the euro countries pretended that the previous day’s compromise had not existed.
At the time, a letter was published that was drafted by, among others, French President Emmanuel Macron, Italy’s Prime Minister Giuseppe Conte and Spain’s Prime Minister Pedro Sánchez.
Together with six other EU countries, they demand that the EU countries jointly owe money to finance the fight against the virus and the stabilization of the European economies.
The idea of joint bonds between the EU countries first emerged in the euro crisis. If countries with a stronger fiscal stance such as Germany or the Netherlands issue joint bonds with more indebted countries such as Italy, participants with lower credit ratings would have to pay lower interest rates.
Due to the comparatively good creditworthiness of countries such as Germany, investors are likely to demand a lower risk premium. The Federal Government and other northern European countries, however, reject such a communitization of debts at European level.
The timing of the letter, which Portugal, Ireland, Luxembourg, Slovenia, Belgium and Greece have also signed, has been strategically chosen: On Thursday, the EU heads of state and government want to join forces for their third video conference on the Corona crisis.
It should also be about financing the crisis measures. In this situation, the letter is likely to put pressure on fiscal conservative members such as Germany, Finland and the Netherlands.
They had hoped that Tuesday’s compromise, which will also be discussed by the heads of government on Thursday, would shelve the discussion of common corona debt.
After all, what has already been decided is a turning point: the euro rescue package is intended to provide every euro member with a precautionary credit line of two percent of economic output that can be called in an emergency.
Such a general credit line for all euro countries has not yet been planned. The ESM statutes provide for measures to specifically help individual countries with financial difficulties.
A precautionary line of credit, as is now being discussed, is designed to help economies that are still structurally sound but run the risk of losing access to financial markets. This risk is real for individual euro members. However, the majority of the euro zone countries are currently far from this.
German EU politicians are currently criticizing the commitment to use the ESM. “We should still wait to use large-volume ESM loans,” said Katarina Barley, Vice President of the European Parliament.
“We are still at the very beginning of this crisis and have to prepare for a deep downturn. It is psychologically important that we have measures like ESM support behind us so that we can really get going with Bazooka-like measures in an emergency. ”
“We drive through the fog”
The SPD politician warns that in the future there may well be a situation in which individual highly indebted euro zone countries can only borrow money on the capital markets at very high interest rates.
“It is conceivable that countries that can and must become more indebted now because of the corona crisis will eventually no longer get money from the private capital market,” warns Barley.
Markus Ferber, the spokesman for the conservative EPP parliamentary group in the European Parliament, also criticizes the hasty use of the ESM: “I can only warn against firing all the powder at once,” said the CSU politician.
The finance ministers’ proposal, which is being discussed with the heads of state and government, also appears controversial among the euro countries. However, only the Netherlands dared to publicly criticize the plans:
“We are driving through the fog and do not know what the next phase will look like,” said Finance Minister Wopke Hoekstra after the switch between the finance ministries. In the event of an emergency, the euro zone needed the ESM as the “lender of last resort”.
Printing on Berlin, Amsterdam & Co.
The ESM would be interesting for the countries concerned because a precautionary credit line is a prerequisite for the European Central Bank (ECB) to start its OMT program:
The Outright Monetary Transactions (OMT) instrument, launched by former ECB President Mario Draghi, allows the ECB to buy up government bonds from individual countries – indefinitely.
Draghi introduced this “bazooka” instrument at the height of the euro crisis and calmed the markets without having to use it.
The fact that Draghi’s successor Christine Lagarde also urged the heads of state and government on Wednesday to think about joint corona bonds should increase the pressure on Berlin, Amsterdam & Co.