Friday, May 29, 2020

Euro Group plans to adopt first Corona emergency package

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Brussels Week-long dispute over corona bonds, deep gaps between north and south, Franco-German dissent: After the outbreak of the corona crisis, the EU paralyzed itself for weeks instead of quickly helping the economy.

Now the group of euro finance ministers wants to overcome the blockade: This Tuesday, a first aid package for the economy is to be decided. Mario Centeno, head of the Eurogroup, is optimistic that an agreement will be reached between the 19 finance ministers, EU diplomats said.

The maximum possible scope of the package is 540 billion euros.

The emergency package for business consists of three elements:

  1. At the A precautionary credit line is set up at ESM for states that are financially overwhelmed to cope with the crisis. In theory, every EU country can apply up to two percent of its annual economic output from this so-called Enhanced Conditions Credit Line (ECCL). In this – unlikely – case the total ECCL loan amount would amount to 240 billion euros.

    The conditions associated with ESM loans are significantly weakened. Beneficiary countries should only commit to restricting the ESM loan to expenses incurred in connection with the corona crisis. And they should promise to respect the European fiscal rules when they are put back into force.

    Because of the crisis, the EU Commission has European Stability Pact currently suspended: the limits for total debt (60 percent of gross domestic product) and deficit (three percent of GDP) do not currently apply. The eurozone does not want to prescribe an economic reform program as actually envisaged in the ESM rule book to the recipients of the Corona aid loans. The usual troika, which would monitor compliance with such a program, should not exist either.

  2. The EU Commission offers the EU countries Loans to help finance the exploding costs for Short-time work allowance to help. To this end, the Commission plans to raise up to € 100 billion on the financial markets. The EU states are to guarantee a quarter of this sum.
  3. The European Investment Bank (EIB) wants one Provide a guarantee for corporate loans – up to a total of 200 billion euros. The EU member states should also guarantee this.

The Eurogroup still has to resolve some controversial questions on Tuesday. Among other things, it is about the European Investment Bank: The Federal Ministry of Finance has objected to the total amount of 200 billion euros, according to EU circles.

Germany is demanding that the EIB loan package be “significantly” reduced. The reason given was that Germany had already launched a large loan program for companies at its own state development bank KfW and was therefore not interested in a large EIB program.

Euro bonds are not out of the game yet

Euro bonds are not included in the first EU emergency package for the economy. Germany, the Netherlands, Austria and Finland refuse to take out common European government bonds in the fight against the corona crisis – and were able to prevail for the time being.

But it is not postponed: an “overwhelming majority” of the EU member states demand a reconstruction fund for the economy financed with euro bonds, it said in Brussels. The model developed by France for this must not disappear into the sink, but must be taken up again at a later date. Eurogroup boss Centeno should take care of that.

Centeno will report on the results of the Eurogroup meeting on Tuesday at the next EU leaders’ video conference. In addition to the tripartite economic aid package, his report must also include a reference to an economic reconstruction program to be decided, said Brussels.

The French proposal to fund a reconstruction fund with euro bonds must explicitly mention Centeno in his report. The Italian government insists. Otherwise, they will still block the emerging EU credit package for the economy on Tuesday, said EU diplomats.

More: “Every company has to understand that when a country stands still, everything stands still,” says EU Internal Market Commissioner Thierry Breton.

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