Virtual summit, real acrimony: EU leaders clash over ‘corona bonds’

0
96

The summit was virtual; the anger and disagreement among EU leaders was very real.

For Italy, the test of EU solidarity in responding to the coronavirus crisis came down to a simple point: Your bond is your word.

But EU heads of state and government failed Rome’s test during a videoconference on Thursday by refusing to back the idea of “corona bonds” — a common debt instrument to help finance the response to the coronavirus pandemic, which has claimed thousands of lives across Europe in recent weeks and put the Continent on virtual lockdown.

The dispute took EU leaders to the edge of a political debacle, with a complete breakdown averted only through an agreement brokered by European Council President Charles Michel for leaders return to the debate in two weeks, when they will consider formal proposals from eurozone finance ministers.

Still, the leaders’ meeting, which was intended to showcase the bloc’s unity, instead highlighted bitter divisions, fueled by lingering resentment over the handling of the eurozone debt crisis a decade ago, and by more recent and raw fury over the initial unwillingness of other EU capitals to come to Italy’s aid with medical equipment.

Italian Prime Minister Giuseppe Conte, furious about adamant opposition to the corona bonds concept by the Netherlands and Germany, upended the videoconference by declaring that he would not support the leaders’ concluding statement.

“We need to react with innovative financial tools,” Conte told his counterparts, according to an Italian official. Conte issued an ultimatum giving officials in Brussels 10 days to come back with “an adequate solution.”

Spanish Prime Minister Pedro Sánchez weighed in to support Italy, aligning the two countries that have suffered the most coronavirus deaths.

“If we don’t propose now a unified, powerful and effective response to this economic crisis, not only the impact will be tougher, but its effects will last longer and we will be putting at risk the entire European project,” Sánchez said, according to a statement issued by his office. “The same mistakes of the financial crisis of 2008 — which sowed the seeds of disaffection and division with the European project, and provoked the rise of populism — cannot be made. We must learn that lesson.”

As a result of the interventions by Conte and Sánchez, which one senior EU official called “emotional,” the videoconference dragged on three hours longer than expected as Michel worked frantically to preserve the joint statement. Ultimately, he succeeded with a series of tweaks that only officials highly-attuned to Brussels bureaucratese could understand.

For Italy, the test of EU solidarity in responding to the coronavirus crisis came down to a simple point: Your bond is your word.

European Union flags are pictured. | Carl Court/Getty Images

In one paragraph, for example, a call for a “proposal” from the Eurogroup finance ministers became a call for “proposals” plural — a change that in the view of the Italians means that the corona bonds are still on the table.

Officials and diplomats said Michel had convinced Conte and Sánchez to stay on board in part by focusing on a closing paragraph in the joint statement that focused on looking ahead toward recovery from the crisis.

‘We should however start to prepare the measures necessary to get back to a normal functioning of our societies and economies and to sustainable growth,” it says. “This will require a coordinated exit strategy, a comprehensive recovery plan and unprecedented investment. We invite the President of the Commission and the President of the European Council, in consultation with other institutions, especially the [European Central Bank] ECB, to start work on a Roadmap accompanied by an Action Plan to this end.”

The fight over financing instruments overshadowed an array of other steps that EU leaders have taken in recent weeks to strengthen the overall response to the pandemic, including new joint procurement measures for essential medical equipment; a 30-day ban on non-essential travelers from outside the EU; and better coordination over internal border restrictions.

After a rocky start, EU countries are not only helping each other obtain necessary equipment, but in some cases even welcoming sick patients across borders.

The EU leaders’ meeting was just one of several remarkable events on Thursday that showed the world grappling with the pandemic, and government institutions struggling to function amid unprecedented restrictions on travel and large meetings. The European Parliament held a virtual plenary session with remote voting on Thursday morning, and earlier on Thursday afternoon, G20 leaders held a videoconference to discuss their own collective response to the crisis.

Despite the dispute over the corona bonds idea, the EU and its member countries have reacted aggressively to the economic fallout from the pandemic, for example, by declaring a general waiver of rules that limit how much EU countries can borrow, and swiftly granting exceptions to state-aid regulations so capitals can assist ailing industries and companies. In addition, the European Central Bank has pledged to unleash €750 billion to prop up the battered economy.

But there were clear signs earlier this week that the EU leaders’ videoconference could be headed for a disastrous result.

On the eve of the virtual summit, nine countries, including Italy, Spain and France, sent a letter to Michel urging a more collective economic response by the EU, including a specific reference to common debt instruments — in other words, corona bonds.

“In particular, we need to work on a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all Member States, thus ensuring stable long term financing for the policies required to counter the damages caused by this pandemic,” the nine leaders wrote. “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.”

Some officials and diplomats acknowledged that leaders had done little more than postpone the fight on Thursday evening.

“We will have to meet again to have this political debate,” a French official said, “and we know it’s going to be a difficult debate.”

“There are different visions on what financial solidarity should be, but at least we all agreed on the need to examine the question and the urgency of the question,” the French official added.

“We have to differentiate between the theater of the moment and the reality of the debate,” the official said. “The Italians may have wanted to dramatize things a bit. I understand it. It’s part of their narrative but it doesn’t reflect the substance of the debate. We actually have a vision that is pretty aligned with the countries that want to push the European project and solidarity pretty far.”

Still, the French official said that President Emmanuel Macron believed that the crisis was a test for EU solidarity and that the bloc’s future hinged on delivering it in this time of need.

German Chancellor Angela Merkel, however, made clear her view that corona bonds should not be part of Europe’s response.

“You are aware of the letters from some member states who have imagined or are imagining corona bonds,” Merkel told reporters. “We have said from both the German and other sides that this is not … the view of all EU countries.”

Merkel said she preferred an alternative plan to use the European Stability Mechanism (ESM), which was created in 2012 to help eurozone countries in serious financial distress. “With the ESM we have a crisis instrument that opens up many possibilities for us that do not call into question the basic principles of our common and responsible action,” she said.

Dutch Prime Minister Mark Rutte has been firm in his country’s opposition to the corona bonds, and Austrian Chancellor Sebastian Kurz and Finnish Prime Minister Sanna Marin also spoke out against the idea.

“There’s still a great disagreement in Europe about the long-term” economic response to the crisis, Rutte told reporters on Thursday.

Asked at a news conference following the leaders’ meeting to clarify what had been decided, Michel said that the heads of state and government had tasked the Eurogroup with putting forward ideas, including use of the ESM. But he said that in his view there was crucial agreement on the need for a forceful response.

“The Eurogroup has started to discuss different proposals, the ESM included and we have asked the Eurogroup to continue and make some proposals within two weeks,” Michel said. “The important signal is based on the fact that each member state, we recognize that this crisis is exceptional, is unique and it requires a very strong answer.”

“There are different visions on what financial solidarity should be, but at least we all agreed on the need to examine the question and the urgency of the question,” the French official added.

LEAVE A REPLY

Please enter your comment!
Please enter your name here