Talks on a coronavirus economic rescue plan for the eurozone worth up to €540bn (£476bn) have broken up without a deal amid north-south divisions over the strings to attach to financial aid for the most-stricken countries.
Negotiations were suspended after a marathon all-night video conference call between the 19 finance ministers of the eurozone ended early on Wednesday morning.
Mário Centeno, the Portuguese finance minister, who serves as the Eurogroup president, said ministers “came close to a deal” after 16 hours of talks and would continue discussions on Thursday. “My goal remains: a strong EU safety net against fallout of #covid19 (to shield workers, firms &countries)& commit to a sizeable recovery plan,” he wrote on Twitter.
The coronavirus pandemic is testing EU unity, especially the inner circle of 19 countries that use the single currency, where there are stark differences over the question of shared debt. A dispute between the Netherlands and Italy, the two countries at opposite poles of the EU’s debt divide, thwarted an agreement on a package of loans that could be worth up to €540bn.
As the meeting broke up, the finance ministers of France and Germany issued a joint appeal on Twitter for an agreement. “We call on all European states to rise to the exceptional challenges to reach an agreement,” wrote France’s Bruno Le Maire, wording echoed by his German counterpart, Olaf Scholz.
Spain warned the EU’s future was at risk. “This is a crucial issue on which the European Union’s future is at stake,” the agriculture minister, Luis Planas, told Spanish radio. He said he was optimistic further talks would bring results.
During the all-night talks, ministers largely sidestepped the divisive question of mutualised debt, so-called “corona bonds”. They are expected to call on EU leaders to discuss how to finance an EU recovery fund – two weeks after the same heads of state and government called on their finance ministers to work out options.
Instead, the main stumbling block was the conditions that should be attached to credit issued by the eurozone bailout fund, the European Stability Mechanism.
The ESM has €410bn of unused lending capacity, which would allow the hardest-hit countries, such as Spain and Italy, to draw on emergency credit lines. About €240bn of this could be made available.
Under EU law, any country that takes a loan from the ESM must sign up to terms and conditions but countries are split over what they should be.
Italy had wanted a reference to common debt issuance, to make using the EU bailout fund more politically palatable. The Netherlands held out for “growth-infusing” conditions attached to any credit lines from the bailout fund. The Dutch wanted to ensure that ESM credit lines were linked to measures to boost growth and balance budgets once the crisis was over.
While there is agreement not to send in EU inspectors to monitor loans, southern European countries, such as Italy and Spain, have complained of being stigmatised for a crisis not of their making.
Meanwhile, northern countries feel they have not been given enough credit for agreeing to wide-ranging changes that are controversial in their parliaments, such as suspending the EU’s fiscal rules and supporting the expansionary policy of the European Central Bank, which announced a €750bn asset-purchase programme last month in response to the economic damage being wreaked by the global pandemic.
The ministers came close to a deal on less contentious issues, such as a €100bn job-support programme funded by EU borrowing on financial markets. There was also agreement that the EU’s lending arm, the European Investment Bank, should provide loans worth €200bn to businesses, backed by €25bn of EU member state loan guarantees.
Ministers did not discuss corona bonds directly – a tacit recognition of the deep divisions on this issue – but talked more generally about a recovery fund. While there was agreement on that general idea, ministers sidestepped the difficult question of how to finance it.
Ministers will attempt to agree a deal on Thursday but some diplomats remain sceptical an agreement is possible.
The European Trade Union Confederation called on European countries to redouble efforts to make a deal. “I strongly urge finance ministers to reach an agreement. With more than 15 million workers who have already lost their jobs in Europe, working people cannot wait while the Eurogroup wrangles,” the general secretary, Luca Visentini, said.