EU members won't agree to pooled debt

Agence France-Presse

Posted at Mar 30 2020 09:41 PM

Flags of the European Union flutter in front of the headquarters of the European Central Bank (ECB) in Frankfurt am Main, western Germany, on March 12, 2020. Daniel Roland, AFP

ROME - The European Union's economics commissioner said Monday that member states would never all agree to mutualized debt, but that a compromise with Germany was key to Europe surviving the coronavirus crisis.

One way to finance the massive effort needed to shore up Europe's economy during the crisis "is to issue bonds, but not generically to mutualize the debt, which will never be accepted," EU Economics Commissioner Paolo Gentiloni told Italy's Radio Capital.

Ongoing disagreements among member states on what policy to take risked splitting and dooming the European project, added Gentiloni, a former prime minister of Italy. 

Gentiloni's comments came after Italy and other southern countries lobbied unsuccessfully last week for so-called "coronabonds," which would allow for pooled debt shouldered collectively by eurozone members.

On Thursday, Germany and other northern EU states rejected a proposal backed by nine countries, including Italy, Spain and France, for such mutualized debt issued in the name of the eurozone as a whole -- a long-established red line in Berlin. 

Gentiloni said he had expected that reaction by Germany, calling it a "long-standing vision that we know by heart".

Germany has repeatedly dismissed the idea of mutualized European debt as an attempt by over-spending southerners in need of economic reforms to take advantage of the cheap borrowing rates enjoyed by states with balanced budgets, without being subject to fiscal austerity measures.

Also on Monday, Italian Prime Minister Giuseppe Conte said Europe needed to deliver a "decisive blow" in face of the crisis. 

"No one is asking Europe to assume sovereign debt, only to be capable of delivering a decisive blow to be able to get out of this socioeconomic tsunami," Conte told Spain's El Pais newspaper. 

"Italy isn't asking that its accumulated public debt be shared," he said. "This debt will remain the responsibility of every country."

"Now is the moment to introduce a common European debt instrument that allows us to win this war as fast as possible to revive the economy," he told the paper. 

Conte said the dismantling of restrictive measures in Italy, such as the closing of most businesses and the quarantine of citizens, would be assessed only when the "curve" began to fall, cautioning that such loosening of restrictions would be gradual.

DYING OUT 

Gentiloni told Radio Capital that without cohesion in its response to the coronavirus crisis, "the European project is in danger of dying out." 

"It is clear that if the economic differences between European countries, rather than shrinking in the face of a crisis like this, instead increase... it will be very difficult to keep the European project together," he warned. 

Without Germany, he added, "we cannot find a compromise".

European member states should "start with the common objectives" in order to break the standstill, he said.

"We need a new unemployment guarantee instrument, a business support plan and we need the "Green Deal" development model to not be forgotten," he said.

In addition to his skepticism over the viability of coronabonds, Gentiloni said he was "not very optimistic" about continued discussions over the possible use of the European Stability Mechanism, which normally attaches strict fiscal conditions to its emergency borrowing. 

Some say that mechanism, set up in 2012 during the European sovereign debt crisis, would in the current coronavirus crisis unfairly punish already highly indebted countries such as Italy, imposing new and unattainable conditions for fixing its public finances.

Comparisons with past crises were unhelpful in confronting the challenge posed by the coronavirus pandemic, Gentiloni suggested, a view also voiced by Italy's minister for European affairs.

"It's a new crisis, it's not comparable to the crisis of 2008, there is no guidebook, there are no clues that leaders recognise from the past," European Affairs Minister Vincenzo Amendola told journalists on Monday. 

"When we think about the sacrifices of the people, it's a huge, extraordinary novelty with dramatic consequences, and leaders must respond to the challenge."