EU leaders look to life after virus with measures to save economy

Brussels – EU leaders started laying the groundwork for Europe’s return to normality once the peak of the coronavirus crisis has passed, during a videoconference that is also to focus on the immediate economic challenges of the outbreak.

Preparations to get back to normality

Covid-19, the potentially deadly disease caused by the new coronavirus sweeping the world, has brought social and economic life to its knees across the European Union. Nationally imposed measures – such as border restrictions – have also challenged the bloc’s unity.

“While the urgency is presently on fighting the coronavirus pandemic and its immediate consequences, we should start to prepare the measures necessary to get back to a normal functioning of our societies and to sustainable growth,” EU leaders say, according to a draft text.

Credit line for struggling countries

Eurozone governments are at odds over how much fiscal firepower to roll out at present. The leader of the currency’s area’s group of finance ministers, Mario Centeno, said earlier there was “broad support” for a precautionary credit line from the currency area’s bailout fund, the European Stability Mechanism (ESM), for countries struggling to cover emergency spending.

But eurozone leaders are likely to stop short of green-lighting the measure. There were no references to the ESM in a draft joint statement finalized before talks began and seen by dpa.

Even if premiers back the move, the details and the crucial conditions attached to access the funds, would still need be thrashed out by eurozone finance ministers.

The Business Climate in the Eurozone

The economic impact of the outbreak is particularly worrying, with the European Commission warning that it could trigger a slump comparable to the worst year of the eurozone crisis, in 2009.

Series of measures introduced

The EU’s executive branch and the European Central Bank have introduced a series of measures to soften the blow, and member states have taken far-reaching national fiscal steps, but many are calling on the eurozone to do more to bolster the 19-member currency area.

Nine member states, including worst-hit Italy, penned a letter to European Council President Charles Michel, calling for “further action to buttress our economies today.”

Specifically, they are demanding a “common debt instrument” to raise funds on the market for all on equal terms – an idea commonly referred to as coronabonds.

“The case for such a common instrument is strong, since we are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all,” the letter says.

Besides Italian Prime Minister Giuseppe Conte, it is signed by the leaders of Belgium, France, Greece, Ireland, Luxembourg, Portugal, Slovenia and Spain.

A change of mindset is necessary

The ECB’s former president Mario Draghi, who fiercely opposed such a move during the eurocrisis, backed it in an op-ed for the Financial Times ahead of the talks.
“Faced with unforeseen circumstances, a change of mindset is as necessary in this crisis as it would be in times of war,” he wrote.

The idea, debated by eurozone finance ministers, is unlikely to fly, however, given the time it would take to set up a new instrument and traditional reluctance from fiscal hawks such as Germany and the Netherlands.

The draft statement of EU leaders said only that their “response should take into account the unprecedented nature of the Covid-19 shock affecting all our countries and will be stepped up, as necessary, with further action.”

The issue threatens to reopen old fault lines between north and south, reminiscent of the divisions laid bare by the eurozone crisis.