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EU: North-south divide on coronavirus bailout plan

Eurozone finance ministers deeply divided by idea of issuing common debt to finance economy recovery

Agnes Szucs   | 08.04.2020
EU: North-south divide on coronavirus bailout plan


After 16 hours of discussions, as of Wednesday morning eurozone finance ministers had failed to find an agreement on the coronavirus rescue package, with a north-south impasse looming large.

Mario Centeno, president of the Eurogroup, decided to suspend the talks, but they are set to resume on Thursday.

EU leaders have been struggling to find an agreement on bailout measures meant to help countries hardest hit by economic fallout from the coronavirus.

The main divide is between the southern states of Italy and Spain, and the northwestern countries of the Netherlands, Austria, and Finland.

While the Mediterranean countries are insisting on launching an EU-wide economic recovery program financed by Eurobonds, the other group is adamant on refusing common debt.

The plan would bring huge relief to the southern countries, who can only issue state debt with high interest rates.

Guarantees for southern debt

Eurozone countries together could secure financing much more cheaply, but this would also imply northwestern countries providing guarantees for the debt of southern countries, whose budgetary disciple standards have never been as high as their northern neighbors.

Earlier this week, Olaf Scholz and Heiko Maas, the German finance and foreign ministers, suggested financing the bailout by bonds of the European Stability Mechanism, a guarantee fund founded in 2012, in the wake of the 2008 economic crisis.

Germany suggested that the coronavirus bailout would not require state reforms to budgetary discipline and public spending, while the Netherlands, Austria and Finland insisted that the fund only be used for economic recovery and health care.

The eurozone president has spoken of about up to €240 billion ($260 billion) in ESM credit.

Moreover, northern finance ministers also backed the European Commission’s €100 billion ($109 billion) plan for short-term employment support for member states.

The program would also bring cheaper financing for particularly fragile economies because it is the European Commission that would take credit in the international financial markets and lend it to the member states.

Italy and Spain continue to plea for more solidarity.

According to the U.S.-based Johns Hopkins University's Coronavirus Resource Center, 1.43 million cases of COVID-19 have been confirmed worldwide, with over 82,000 deaths and more than 302,000 people have recovered.

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