Vulcan Insight: Divisions deepen as finance ministers fail to agree on rescue package

April 8, 2020

“Beyond differences and geographical boundaries there lies a common interest,” one of the EU’s founding fathers, Jean Monnet, once said. In the fight against COVID-19, questions are being raised where that common interest lies.

Ten weeks into the coronavirus outbreak in Europe, EU Finance Ministers met last night via videoconference to devise a coordinated plan to restart Europe’s economy. Yet, two weeks after being tasked with bringing forward concrete solutions by the EU Heads of State and Government, Finance Ministers failed to find agreement over the most effective and sustainable response.

Finance Ministers were to discuss and decide on concrete proposals on a possible combination of European Stability Mechanism (ESM) loans, EIB credits, ‘coronabonds’, and the Commission’s proposed SURE unemployment reinsurance scheme. Following 16 hours of negotiations, Eurozone President Mário Centeno decided to call off discussions when it became clear that an agreement would not be found. Mr. Centeno will now reconvene his Ministers for further discussions on Thursday.

Ministers wholly agreed on using €200 billion of European Investment Bank (EIB) credit lines to support SMEs through the crisis and supported the Commission’s €100 billion proposal for SURE. The crux of the debate revolved around the application and conditions for using ESM loans to help national governments through the crisis. 

While, in the absence of concrete discussions on coronabonds, Ministers agreed on the use of ESM loans, talks broke down over substantial policy and ideological differences on the conditions that should be attached to using such credit lines. Italy’s Roberto Gualtieri, backed by France, Spain and a number of other countries, would like to see a temporary loosening of current conditions to allow ESM credit lines to be used more broadly. The fiscally hawkish countries, namely the Netherlands, Germany, Austria and Finland (the frugal four) have outrightly rejected such a lightening of conditions.

According to the Dutch Finance Minister Wopke Hoekstra, governments availing of ESM credit lines must only use them for coronavirus-related healthcare and economic costs. Similar to the conditions applied in the aftermath of the financial crisis, the frugal four are looking to tie economic reform conditions to the use of ESM loans.

The uncoordinated approach was further highlighted last night with the European Commission abruptly cancelling a planned announcement of an “exit strategy” from the COVID-19 pandemic. Following pressure from national leaders, the Commission was forced to downgrade the strategy to an internal discussion document. From a roar to a whimper.

It also emerged yesterday evening that Mauro Ferrari, the President of the Commission’s Joint Research Council, had resigned over the EU’s failed approach to the crisis. In a statement, Mr. Ferrari said that there was a  “complete absence of coordination of health care policies among member states, the recurrent opposition to cohesive financial support initiatives, the pervasive one-sided border closures, and the marginal scale of synergistic scientific initiatives.”

Yesterday’s developments highlight the structural challenges the European Union and its Member States are facing. The European Council is set to meet again following the Easter break. With the clock ticking, Heads of State and Government must step up and find agreement where their Ministers cannot.

Compliments of Vulcan Consulting – a member of the EACCNY.